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Action Insight: Special Reports

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ECB Left Rates Unchanged; Discussed about Backstop for NPLs Print E-mail
Special Reports | Written by | Jul 21 16 14:34 GMT
As widely anticipated, ECB left the deposit rate unchanged at -0.4% and the main refinancing rate at 0%. The central bank also maintained the asset purchase of 80B euro per month until March 2017 or beyond, if necessary. When asked about if ECB has considered changing the terms of its asset-purchase scheme, to avoid it running out of government bonds to buy, President Mario Draghi noted that it's too early to assess the need for fresh measures and policymakers might consider the situation at the September meeting. A key topic of the press conference is Brexit. Draghi indicated markets have coped the situation "relatively well". He added that Eurozone financial markets have "weathered the spike in volatility with encouraging resilience". Despite rigorous questions about Brexit's impact on Eurozone's outlook and ECB's monetary policy outlook, Draghi refrained from giving any hints about the next move. Banks shares were boosted by the President's call for public backstop to help banks shed their bad loans.
RBNZ Signals Rate Cut In Near Future Print E-mail
Special Reports | Written by | Jul 21 16 07:26 GMT
RBNZ in its unscheduled 'Economic Update' signaled a rate cut would adopted in coming months. The central bank warned that stronger-than-expected NZD would weigh on exports demand and pressure tradable goods inflation. Policymakers suggested while the global economic growth prospects have 'diminished', especially after the Brexit referendum, domestic growth would remain supported by factors including migration and accommodative monetary policy. Risks to the outlook, however, are skewed to the downside. RBNZ pledged to maintain accommodative monetary policy and suggested that 'further policy easing will be required'. We expect RBNZ to cut OCR by -25 bps in August.
PBOC Permits More Renminbi Depreciation Print E-mail
Special Reports | Written by | Jul 19 16 10:59 GMT
PBOC lowers the renminbi fixing rate for a second consecutive day. At 6.6971, CNY reaches the lowest level seen since September 2010 against USD. Onshore USDCNY and offshore USDCNH also rose to 5.5-year highs of 6.7 and 6.716 respectively. Optimism over the better-than-expected GDP growth in 2Q16 and June economic indicators proves short-lived as traders resumed selling of renminbi on hopes economic slowdown in the remaining of 2016. June FX reserve and government behavior signal that China prefers to see renminbi weaken as this might facilitate the plan to recover growth. We expect renminbi to depreciate further with USDCNY rising to around 6.8 in 3Q16, and then to 6.9 in 1Q17, before stabilizing in 2Q17..
RBA: August Meeting Is Live Print E-mail
Special Reports | Written by | Jul 19 16 05:23 GMT
The RBA minutes for the July meeting came in more dovish than expected, heightening speculations of a rate cut in August. Policymakers noted that conditions in both the housing and labor markets had been 'more mixed of late'. They believe further information on 'inflationary pressures, the labour market and housing market activity' over the following month should provide an update of their forecasts ahead of the August meeting and allow them make adjustment to the monetary policy, if needed. AUDUSD dropped to as low as 0.7505, a level not seen since July 8, after the minutes.
Chinese Growth Improved. Sustainability In Doubt Print E-mail
Special Reports | Written by | Jul 15 16 07:49 GMT
China's GDP growth +6.7% y/y in 2Q16, unchanged from the prior quarter. This, however, beat market expectations of +6.6% and might help the government to reach its full year growth target of 6.5-7% for 2016. From a quarter ago, the economy expanded +1.8%. Other macroeconomic data released earlier today also supported the trend of a cyclical rebound in China's economy. Industrial production expanded +6.2% y/y in June, better than consensus of +5.9% and +6% in May. Yet, we are suspicious over the sustainability of the improvement as overcapacity and the transition towards consumption-led economic growth should contain growth. Growth in retail sales accelerated to +10.6% y/y in June from +10% in May. The increase in consumer spending during the month was likely driven by the rebound in housing market and government subsidies for the purchase of energy-efficient cars. Yet, we remain cautious over the retail sales outlook as slowdown in wage growth should dampen consumer sentiment and spending decision over the remaining of the year
BOE Votes 8-1 to Keep Rate Unchanged at 0.5% Print E-mail
Special Reports | Written by | Jul 14 16 13:22 GMT
Against market expectations which had priced in almost 80% of a rate cut in July, BOE decided to leave the Bank rate unchanged at 0.5%. We find it surprising also to see the 8-1 split (Gertjan Vlieghe voted for rate cut) amongst the members. Indeed, we had thought more members to favor easing this month. The members voted unanimously to keep the asset purchase program at 375B pound. However, the central bank sent strong hint that there would be a move in coming months. British pound rallied after the announcement with GBPUSD rising to a 2-week high of 1.347 and EURGBP falling to as low as 0.8247.
BOC Cut Growth for 2016 and 2017, Brexit Impact Modest Print E-mail
Special Reports | Written by | Jul 13 16 15:44 GMT
In line with expectations, BOC left the policy rate unchanged at 0.5% in July. Policymakers admitted that the result of the June 23 EU referendum would have impact on Canada's economy, estimating that Brexit would trim GDP growth by -0.1% over the next 2.5 years. They also cut outlook for 2016 and 2017. However, they remained optimistic that inflation is on track to return to the +2% target and GDP growth would accelerate in 2017. USDCAD retreated to a 4-day low of 1.2936 after the announcement.
Monetary and Fiscal Policies to Restore Post-Brexit Confidence Will Keep GBP Pressured Print E-mail
Special Reports | Written by | Jul 12 16 13:48 GMT
The market has priced in over 60% of chance for a BOE rate cut on Thursday. While we may not hold the same degree of conviction as others, we do believe a rate cut is coming. It would restore confidence, of consumers, businessmen and investors, and growth, should keep British pound under pressure in the medium term. We have revised our GBPUSD forecasts, expecting it to fall to 1.22 by year-end, before recovering to 1.25 in the second quarter of next year. Euro's relative strength against the pound should sustain toward the year end as the immediate impacts of Brexit should affect the UK much more than those remaining in the EU. We see the chance for EURGBP to break above the recent high before end of the year.
Brexit Leads UK and the World to Uncharted Territory Print E-mail
Special Reports | Written by | Jun 24 16 12:14 GMT
To the surprise of the whole world, Britain decides to LEAVE the EU with 51.9-48.1 vote and turnout of 72.2%. Shortly after the result was confirmed, Prime Minister David Cameron announced his plan to step down by October. As he delivered his speech outside 10 Downing Street, Cameron noted that "the British people have made a very clear decision to take a different path and as such I think the country requires fresh leadership to take it in this direction. I will do everything I can as Prime Minister to steady the ship over the coming weeks and months but I do not think it would be right for me to try to be the captain that steers our country to its next destination".
Contingency Plans For 'Leave' Outcome Point To More Accommodate Measures Print E-mail
Special Reports | Written by | Jun 23 16 10:04 GMT
Central bank chiefs have over the past weeks stepped up warnings over the Brexit risks. While the Fed's decision keep interest rates unchanged in June was mainly due to disappointing job data, Chair Janet Yellen noted at the press conference that the uncertainty of EU referendum on June 23 is a critical factor affecting the rate decision. At her testimony over the past 2 days, Yellen repeated that a vote to 'leave' the EU would 'have significant economic repercussions'. Other central banks also expressed their concerns over the economic development after Brexit. In our opinion, a decision to 'leave' would further delay Fed's rate hike schedule and trigger ECB and BOJ to add more stimulus. It is rather difficult to predict BOE's action, but a move to cut rates appears higher than to increase.
If UK Leaves EU,... Print E-mail
Special Reports | Written by | Jun 21 16 15:44 GMT
With only a few days to go before the EU referendum, available polls suggest it would be a neck-and-neck race. Financial Times' poll of polls shows that, as of June 21, supports for "remain" and "leave" both stood at 44%. A huge 12% of undecided voters would be the key to the final outcome. The poll of polls by revealed 50% for both "remain" and "leave" camps. Since whether to "remain" or to "leave" the EU would be a very close call, we believe the market has at most priced in 50% chance of "leave". As such, a "leave" on June 23 would indeed cause turbulence in the financial markets. Apart from comments from politicians and events by campaigns of both sides, the TV programmes that might also influence voting intentions include BBC live event today (June 21) at Wembley Arena where representatives of each side of the debate will face questions from the public and Channel 4's final TV debate with various campaigners from the "remain" and "leave" camps on June 22.
RBA More Upbeat Over Growth And Employment, Weak Inflation Driver For Another Rate Cut Print E-mail
Special Reports | Written by | Jun 21 16 07:22 GMT
The RBA minutes for the June meeting unveiled that policymakers were content over Australia’s growth and employment situation, although they remained cautious over the persistently low inflation. While acknowledging the recent increase in house prices, particularly in Sydney and Melbourne, the central bank did not view it as a barrier to further monetary easing. It also reiterated the comments that appreciation of Australian dollar could 'complicate the adjustment of the economy to the lower terms of trade'. Meanwhile, the RBA admitted possible volatility risks driven by Brexit referendum. The RBA was neutral in the monetary policy outlook but left the door open for a rate cut in August.
BOE Steps Up Warnings of Post-Brexit Adversity Print E-mail
Special Reports | Written by | Jun 16 16 15:06 GMT
Following Fed, BOJ and SNB, BOE announced to leave the policy rate unchanged at 0.5% in June. It also maintained the size of the Asset Purchase program at 375B pound. What interests the market the most is the central bank's latest assessment on the impacts of Brexit, especially the rising lead of the "leave" camp in recent polls. BOE indicated that the outcome of the referendum next week would be the biggest imminent risks facing financial markets in UK, as well as in the world. The pound is expected to fall "sharply" if UK decides to leave EU. EURGBP extended strength to a 2-month high of 0.7994 before retreat.
SNB Keeps Powder Dry Despite Franc Strength, Lifts Inflation Forecasts Print E-mail
Special Reports | Written by | Jun 16 16 10:55 GMT
SNB left its deposit rate unchanged at -0.75%, and the target range for 3-month Libor target range stable at between -0.25% and -1.25%, in June. Meanwhile, it kept the GDP growth forecasts unchanged while lifted the inflation outlook. President Thomas Jordan warned of the negative effects of recent Brexit uncertainty, indicating that the issue “has already caused volatility on the financial markets to rise… Uncertainty emanating from political events could escalate, hampering economic development”. Recent strength in Swiss franc should extend for a while should Britons decide to leave the EU next week, forcing SNB to intervene in the currency market.
Fed Left Policy Rate Unchanged, More Members Expect Fewer Hikes in 2016 Print E-mail
Special Reports | Written by | Jun 16 16 03:40 GMT
As expected, the Fed left the Fed funds rate target unchanged at 0.25-0.5% in June. However, the accompanying statement and the staff projections turned out to be more dovish than expected. First, the members voted 10-0 to leave the Fed funds rate unchanged with Esther George joining the camp after supporting rate hikes in both March and April. The median member still calls for 2rate hikes this year, whilst 6 members expect only one rate hike this year. Meanwhile, the median Fed Funds rate expectations for end- 2017 and 2018, as well as the long-run Fed funds rate, have been revised lower. Chair Janet Yellen noted the uncertainty of Brexit referendum on June 23 is a critical factor affecting the rate decision. She still opened the door for a rate hike in July.
China's Growth in Fixed Asset Investment Showed Sharp Deceleration in May Print E-mail
Special Reports | Written by | Jun 14 16 15:29 GMT
China's macroeconomic data in May added further to growth concerns. While expansion in industrial production and retail sales steadied, that for fixed asset investment was sharply lower. Industrial production grew +6% y/y in May, in line with expectations and April's reading, while retail sales expanded +10% y/y, compared with consensus and April's +10.1% growth. The disappointment mainly came from urban fixed asset investment (FAI)as growth of which decelerated significantly to +9.6% y/y in the first 5 months of the year, from +10.5% in the first 4 months of year. The market had only anticipated a mild slowdown to +10.4%. This also marks the slowest pace since 2000. Note that China has notorious record of making up numbers in its trade figures, we suggest to macroeconomic data with caution.
May Statistics In China Fail To Alleviate Slowdown Concerns Print E-mail
Special Reports | Written by | Jun 10 16 11:13 GMT
China's data released throughout the week anchored concerns over the country's growth outlook. FX reserve fell –US$27.9B to US$3.19 trillion, the lowest level since December 2011, in May. Strong USD during the period exacerbated the problem of capital outflows. It is estimated that US$32B of capital fled China in May, accelerating from 25B a month ago. While the decline in FX reserves in May was tamer than those seen during the period of November 2015- January 2016, the net balance of payment outflows continued. With trade surplus widening over +US$5B to US$49.98B in May, capital obviously continued to flee the country. We expect the situation to continue. Onshore renminbi (CNY) declined more than -1.6% against USD in May (the biggest fall since August 2015), suggesting the government is allowing capital outflow to be reflected in renminbi depreciation, instead of merely decline in FX reserve. PBOC also reported a +3.5B increase in reserve in SDR terms from April's level.
RBNZ Keeps Powder Dry, Kiwi Jumps To Highest In Over A Year Print E-mail
Special Reports | Written by | Jun 09 16 04:51 GMT
RBNZ kept the OCR unchanged at 2.25% in June and sent a less dovish message in the accompanying statement. While maintaining easing bias, policymakers appeared to have turned more positive on global economy and financial markets. They have also revised higher domestic growth and inflation forecasts in the near-term, while revising lower them in the long-term. The members indicated that inflation remains low but expectations are stabilizing. They were concerned over housing price inflation. RBNZ was less concerned about the exchange rate although suggesting that the kiwi remained “higher than appropriate”. Carrying forward the strong tone over the past week, NZDUSD extends the rally to a 13-month high of 0.713 after the announcement.
Brexit Referendum: Two More Weeks To Go Print E-mail
Special Reports | Written by | Jun 08 16 10:29 GMT
Selloff of EURCHF gathered momentum after a report showing significant increase in SNB’s FX reserve. FX reserves rose to a record higher of CHF602.1B in May, from CHF587.9B a month ago, as the central bank likely acted to prevent Swiss franc from appreciating too rapidly. Recent strength in Swiss franc is also demonstrated in USDCHF which has fallen more than -3% from the 2Q16 peak of 0.9955 made on May 30. Safe haven characteristic of the franc is especially appealing as uncertainty increases over Brexit referendum. We expect referendum to continue to dominate the short-term trend for both USDCHF and EURCHF. For sure, renewed dovish sentiment following the May US employment report has also helped pressure the former.
RBA Left Cash Rate Unchanged, Removed Language of Further Easing Print E-mail
Special Reports | Written by | Jun 07 16 06:07 GMT
RBA left the cash rate unchanged at 1.75% in June, following a -25 bps cut a month ago. Policymakers acknowledged continued growth in domestic economy and expansion in exports. Yet, they remained concerned over the persistently low inflation. The central bank refrained from giving hints of the timing for the next rate cut, other than keeping the door open for further easing.
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