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Action Insight: Special Reports

Action Insight is the most popular section of the site, read by traders around the world. Our team of analysts work around the clock, analyzing the markets from technical and fundamental perspectives in providing the reports in this section to you.

BOC Stands On The Sideline, Warned Of Risks Of Low Inflation Print E-mail
Special Reports | Written by | Apr 17 14 05:20 GMT
As widely anticipated, the BOC left the policy rate unchanged at 1%. Policymakers also indicated that they expected core inflation would remain well below 2% this year while persisting economic slack and heightened retail competition would keep the rate below 2% until early in 2016. The central bank indicated that despite gradual strengthening in the fundamental drivers of growth and inflation, the downside risks to inflation and the risks associated with household imbalances remained elevated. On the monetary stance, the BOC maintained its neutral policy stance, indicating that 'the timing and direction of the next change to the policy rate will depend on how new information influences the balance of risks'.
RBA Minutes Maintains Neutral Policy Stance Print E-mail
Special Reports | Written by | Apr 15 14 05:25 GMT
The RBA minutes for the April meeting echoed the neutral stance of policymakers. While acknowledging signs of economic improvement as driven by previous easing measures, the central bank warned that recent strength in the Australian dollar had dampened the positive effects of previous decline in the exchange rate on growth.
Headline Chinese Trade Data Distorted by Over-Invoicing Last Year Print E-mail
Special Reports | Written by | Apr 10 14 12:17 GMT
Chinese trade data surprised to the downside as exports surprisingly contracted -6.6% y/y to US$ 170B in March, compared with a -18.1% decline in February and a -1.6% drop in the first 2 months of the year. Imports declined -11.3% to US$ 162B, down from +10.2% in February. The net result was a larger-than-expected trade surplus of US$7.7B following a deficit of US$23B in February. Indeed, the worse-than-expected result was driven by the high base last year due to over-invoicing. Excluding such factor, exports probably grew +6% to +8% during the month. While the Chinese government has pledged to adopt appropriate measures to support growth when needed, the disappointing trade data in March should not trigger immediate policy stimulus.
Fed Downplayed Rate Hike Possibility, Diverged On Interpretation of Employment Market Slacks Print E-mail
Special Reports | Written by | Apr 10 14 05:02 GMT
The FOMC minutes for the March meeting reinforced the Fed's dovish view over the US economic developments. Policymakers were apparently divided on the outlook of the employment market as there was a range of views regarding how much slack remained. Concerning the forward guidance, policymakers were in line to stress that the change of guidance from quantitative to qualitative did not reflect a change in the Committee's policy intentions.
BOJ Keeps Powder Dry, Takes Time To Evaluate Impacts Of Tax Hike Print E-mail
Special Reports | Written by | Apr 08 14 08:07 GMT
The BOJ left the policy rate and the size of asset purchases unchanged in April, as policymakers remained upbeat about Japan's economic outlook. Policymakers voted unanimously to maintain its current plan to inject 60-70 trillion yen into the financial system every year in order to achieving the 2% inflation target by the spring of 2015. Although the new sales tax has taken place for a week, the central bank probably needs more data to gauge its impact on the economy. At the statement, the BOJ noted that the “economy continues to recover moderately as a trend, albeit with some fluctuations caused by the tax hike…Business sentiment has continued to improve, although some cautiousness about the outlook has been observed”.
ECB Showed Unanimity To Adopting QE Print E-mail
Special Reports | Written by | Apr 04 14 04:03 GMT
The ECB refrained from adding stimulus to market but indicated that it's open to further easing. President Mario Draghi also gave strong indication that the members are prepared to implement QE to prevent deflation. We do not expect the central bank to make any move in coming months as the overall economic outlook is improving in the region, unless inflation fails to rise back close to 1%. While the ECB explicitly indicated the use of QE to combat deflation, further questions to be asked are: What are the triggers of QE? Are policymakers unanimous on the triggers? What unconventional measures would be used? Do policymakers unanimously agree on the use of the measures?......
AUD's Relative Outperformance over NZD Unsustainable Print E-mail
Special Reports | Written by | Apr 03 14 12:20 GMT
The rally of AUDNZD over the past few weeks has brought the currency pair to a 5-week high of 1.08. The strength is somehow surprising as the RBNZ has already begun its tightening cycle while the RBA would continue to keep the policy rate low, if not to lower further. Indeed, while both AUD and NZD have weakened against USD over the past few days, the downward momentum of the latter appeared larger, probably as a result of the disappointing online dairy auction and the IMF's warning that the kiwi has overvalued. Despite the near-term strength in AUDNZD, we continue to expect the situation would reverse, given RBNZ's tightening stance and improvement in New Zealand's economic outlook.
USD's Share in Global FX Reserve Declined Further Print E-mail
Special Reports | Written by | Apr 02 14 16:00 GMT
The latest report from the IMF indicates that global FX reserve increased +US$235.1B to 11673.7B in 4Q13. The increase mainly came from China as the PBOC absorbed the country's trade surplus and the rise in capital inflow. Note also that the share of the euro in global FX reserve has risen for a third consecutive quarter, signaling market confidence of the euro has improved. USD's share continued to decline as a result of the Fed's quantitative easing measures over the past years.
ECB's Inaction Can Increase Deflationary Risks Print E-mail
Special Reports | Written by | Mar 28 14 06:43 GMT
It appears that ECB President Mario Draghi has high tolerance of stubbornly low inflation in the region. While the February reading showed further easing of CPI, he continued to downplay the concerns over deflation. Although the ECB has taken the main refi rate to a historical low of 0.25% in November and extended the current LTRO program until at least mid-2015, its monetary stance has remained 'relatively tight' given its economic outlook, compared with other countries. Indeed, the central bank's reluctance to adopt more aggressive stimulating measures has lent good support to the euro which in turn sustains low inflation.
RBA's Rate Hike Still Far Away Print E-mail
Special Reports | Written by | Mar 26 14 07:13 GMT
The RBA next week would likely reiterate its neutral monetary stance and leave the cash rate unchanged at 2.5%. Indeed, it's the consensus that the central bank would maintain the policy rate in this level throughout this year. However, while some forecast tightening to begin in 2015, we expect this would be premature given the downside risks to economic growth in the second half of the year. Moreover, as it's been widely anticipated that both business investment and terms of trade in Australia would fall, it's unlikely that the RBA would hike rate in such an environment.
SNB Pledged to Maintain EURCHF Floor, No Surprise in Statement Print E-mail
Special Reports | Written by | Mar 20 14 11:27 GMT
The SNB left the 3-month LIBOR range at 0-0.25% and maintained its ceiling on the franc at 1.20 per euro in March. With few surprises, the central bank acknowledged "substantial risks attached to the global economic recovery". Domestically, the SNB also revised lower its inflation forecast, noting no inflation risks "in the foreseeable future". Indeed, given economic uncertainty and geopolitical tensions in the emerging markets, safe-haven demand for Swiss franc should remain high. It is impractical for the central bank to take away the EURCHF floor in such an environment.
FOMC Continued To Taper, Outlook More Hawkish Print E-mail
Special Reports | Written by | Mar 20 14 03:46 GMT
The FOMC's March meeting turned out to be more hawkish than expected. Besides announcing a further reduction of monthly asset purchase by USD10B, policymakers have pushed forward the tightening cycle and upgraded the labor market outlook. The Fed also modified its forward guidance, removing the thresholds of 6.5% unemployment rate and 2.5% inflation rate. The central bank, however, stressed that “the change in the Committee's guidance does not indicate any change in the Committee's policy intentions as set forth in its recent statements”.
BOE Minutes Signaled Pound's Strength Would Sustain for Some Time Print E-mail
Special Reports | Written by | Mar 19 14 12:37 GMT
The BOE minutes for the March meeting indicated that policymakers meeting voted unanimously to keep interest rates at a record low of 0.5% and maintain the asset purchase program at 375B pounds. The central bank saw economic improvement over the past months. They also acknowledged the strength in the pound, noting that its "gradual appreciation would continue if prospects in the UK continued to be seen as increasingly favorable relative to those of its main trading partners". The sterling extended the rally after the release of the minutes.
RBA Minutes Reaffirms Neutral Stance, Aussie Rallies as Analysts Pared Rate Cut Outlooks Print E-mail
Special Reports | Written by | Mar 18 14 06:06 GMT
The RBA minutes largely reiterated the central bank's neutral monetary and echoed what was mentioned in the March meeting statement that low interest rates have helped improve Australia's economic growth. Yet, the Aussie rallied after the release, mainly as Macquarie pushed back its RBA rate cut forecast to 3Q14 from 2Q14. It now expects RBA's cash rate would finish at 2.25% by the year-end. Westpac dropped its forecast for additional rate cut, forecasting that the cash rate would stay unchanged for the rest of the year.
China Watch: China Takes One Step Further In Renminbi Liberalization Print E-mail
Special Reports | Written by | Mar 17 14 09:27 GMT
The PBOC widened the USDCNY trading band to +/-2% from +/-1%, effective today, aiming to encourage two-way volatility and generate higher exchange rate flexibility. It is the first move since April 2012 when the central bank widened the currency pair's trading band from +/-0.5% to +/-1%. We expect to see moderate downside risks of CNY in the near-term. However, we remain confident in the stability of the renminbi in the medium-term as the PBOC's holding of US$ 3.8 trillion in foreign exchange reserves should provide adequate defense against disastrous capital flows out of China. In the long run, the government should reform the mechanism on setting the daily fixing of USDCNY and shift to a market-based FX regime.
Sanctions More Symbolic Than Punitive Although Over 90% Crimean Voters Opted To Join Russia Print E-mail
Special Reports | Written by | Mar 17 14 06:13 GMT
With Russia claiming landslide victory in the Crimean referendum, the focus now is how the Federation would handle the procedure of Crimea's accession and how the West would respond with sanctions and other sorts of condemnations. Russia would be the only country that recognizes the referendum results. We expect it would retain Crimea but is unlikely in a rush to formally accept peninsula as a part of Russia. Indeed, Crimea would be Russia's good bargaining chip In negotiations with the Western powers. As long as Russia does not formally accept Crimea as a part of Russia, we do not expect the US and the EU would impose really stringent economic sanctions against the Federation.
RBNZ Raised OCR To 2.75%, More To Come Print E-mail
Special Reports | Written by | Mar 13 14 05:40 GMT
The RBNZ raised the OCR by +25 bps to 2.75% in March. The move was widely anticipated as economic growth over the past months has suggested that it is imprudent to keep the policy rate at post-earthquake emergency low. The central bank also updated its projection, envisaging firmer monetary conditions with a greater front-loading of projected OCR hikes and an upwardly revised assumption for the trade-weighted exchange rate (TWI). The message sent after the meeting is that more tightening is to come. We expect further rate hikes in April and June while policy decisions in the second half of the year are less certain and more dependent on global economic developments.
RBNZ Likely To Raise OCR By 25 Bps In March Print E-mail
Special Reports | Written by | Mar 11 14 06:30 GMT
In line with the consensus, we expected the RBNZ to raise the OCR by +25 bps to 2.75% in March. Although the policymakers might be concerned about further appreciation of the kiwi after the rate hike, the strength of the economy and the upward pressure of inflation suggested that the central bank could no longer keep the policy rate at the post-earthquake 'emergency' low. Policymakers should deliver a more upbeat message on the Monetary Policy Statement, raising the formal projections for the economy and monetary conditions. While awaiting the new MPS, investors should note that the RBNZ currently expects short-term interest rates to reach 4.6% by the end of 2015. Therefore, the (potential) rate hike this week should only be the beginning of the tightening cycle and further hikes should be anticipated in April and June, at least.
China's February Deficit Distorted By LNY And Overinvoicing Print E-mail
Special Reports | Written by | Mar 10 14 09:32 GMT
China's surprising swing to trade deficit in February exacerbated concerns over slowdown in this world's second largest economy. The headline data, while disappointing, was mainly driven by the sharp decline in exports which were in turn distorted by seasonal (Lunar New Year) and technical (inflated, or fake, trade reporting) factors. After adjusting the LNY effect, the combined Jan-Feb exports contracted -1.6% y/y, following a +4.3% growth in December. This revealed that external demand, though softened, were not as weak as the headline reading suggested. Meanwhile, the double-digit imports growth indicated that domestic demand continued to enjoy stable expansion. We expect China's trade balance would return to surplus next month.
ECB Expects Inflation to Stay Below Target in the Medium Term, No Action Unless Material Downside Risks Print E-mail
Special Reports | Written by | Mar 07 14 04:37 GMT
The ECB left the main refi rate unchanged at 0.25% in March. Interest rates on the marginal lending facility and the deposit facility also stayed unchanged at 0.75% and 0.00% respectively. While the Quarterly Macroeconomic Projections forecast only show very gradual economic recovery and below-target inflation by 2016 (1.5%), it does not seem that the central bank would add more easing measures in the near-term, unless faced with big risks. The ECB at this meeting also maintained its forward guidance that interest rates are expected to remain at present or lower levels for an extended period of time, unchanged from the February one. The euro climbed higher on the inaction.
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