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Action Insight: Special Reports

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RBNZ To Tighten Again In July, Might Pause Afterwards Print E-mail
Special Reports | Written by | Jul 22 14 04:14 GMT
Despite recent weak economic data, the RBNZ is expected to raise the OCR by another +25 bps to 3.5% in the July meeting. With second quarter inflation weaker than expected while dairy prices continued to fall, the central bank's decision in July would be more difficult. Yet, the current level of policy rate has remained stimulatory in the central bank's perspective and it would not want to hurt its credibility by announcing to pause this month. However, the accompanying statement might be less hawkish and indicate a pause of tightening until December 2014 or January 2015.
BOC More Dovish Than Expected, Warned Of Sluggish Growth Print E-mail
Special Reports | Written by | Jul 17 14 03:19 GMT
The BOC left the policy rate unchanged at 1% in July and maintained a neutral tone on the monetary policy outlook. Despite the recent pickup in inflation, the central bank attributed it to temporary factors such as 'higher energy prices, exchange rate pass-through and other sector specific shocks'. , rather than to any change in the domestic economic fundamentals'. That said, they removed the reference that there remained 'downside risks' on inflation. Policymakers were concerned about the economic growth, seeing 'substantial slack' in the economy and expecting a delay in closing of the output gap than previously anticipated. At the Monetary Policy Review (MPR) released, the BOC revised higher inflation outlook for this year but lower for 2015. GDP growth was revised lower for this year.
Chinese Growth Beat Expectations In 2Q14, Thanks To Stimulus Print E-mail
Special Reports | Written by | Jul 16 14 11:29 GMT
China's GDP grew +7.5% y/y in 2Q14, accelerating from +7.4% in the prior quarter. The National Statistics Bureau also reported that the sequential GDP growth soared to +8.2% q/q, saar in the second quarter, compared with +6.1% in the priod quarter.. On quarterly basis, growth accelerated to +2% q/q from an upwardly revised +1.5% in 1Q14. China's GDP grew more than expected in 2Q14, thanks to the government's fiscal and monetary stimulus. Meanwhile, economic data in June suggested that growth fixed asset investment and industrial production accelerated, indicating the stimulus began to take effect during the period. While the government probably feels less imminent to adopt further easing given the encouraging second quarter result, more stimuli are still needed as downside risks to growth remained, evidenced by slowing electricity production growth and a drop in the government's VAT revenue.
Yellen Assured Rates To Stay Low For Some Time While Hinted Early Tightening Should Employment Improve Further Print E-mail
Special Reports | Written by | Jul 16 14 05:50 GMT
In the semi-annual testimony before the Senate Banking Committee, Fed Chairman Janet Yellen reiterated that 'a high degree of monetary policy accommodation remains appropriate'. While acknowledging the 'notable improvements' in the job market, Yellen warned that 'significant slack remains'. Meanwhile, the chairman noted that the economy 'continues to improve' but warned that 'the recovery is not yet complete'. It appears that Yellen attempted to downplay speculations of an earlier than expected rate hike upon recent improvement in the US economic data. Market reaction was volatile, in particular when Yellen commented that rate hike would come sooner if the 'the labor market continues to improve more quickly than anticipated'.
RBA Finds It Hard To Judge The Effect Of Decline In Mining Investment And Budget Tightening Print E-mail
Special Reports | Written by | Jul 15 14 05:29 GMT
The RBA minutes for the July meeting contained little new information. However, it revealed that policymakers remained uncertain about the economic outlook. While monetary easing has been working to boost demand, it is hard to gauge the impacts of the decline in mining investment and planned fiscal consolidation on the economy. Despite improvement in the employment condition, the forward-looking indicators have been mixed. The RBA reiterated that Australian dollar has been strong and warned of the negative impacts on the economy.
Fed To End Tapering In October, No Hints On First Rate Hike Print E-mail
Special Reports | Written by | Jul 10 14 02:14 GMT
The FOMC minutes for the June meeting was non-eventful with policymakers giving little guidance on the expected timing of any rate hike cycle. It was revealed in the minutes that the Fed would make a US$15B final reduction at its October meeting. Yet, the conclusion of the program has nothing to do with the timing of the first rate hike. The Fed reiterated that the policy rate would remain near zero for a "considerable time". The general economic outlook of the Committee was more or less the same as that in March. Despite the downward revision to 2014 growth outlook, most members did that to reflect the weak GDP report in 1Q14. They mainly kept the remainder of their forward-looking estimates unchanged.
Benign Inflation Presents No Constraint For PBOC's Easing Print E-mail
Special Reports | Written by | Jul 09 14 09:19 GMT
Headline CPI in China moderated to +2.3% y/y in June from +2.5% a month ago. This was compared with market expectations of a milder ease to +2.4%. The disappointment was mainly driven by food price inflation which decelerated to +3.7% y/y in June from +4.1% in May. Non-food inflation stayed flat at +1.7% y/y. Underlying inflation pressure in China should remain benign and is overall CPI inflation is expected to stay well-below the +3.5% target set by the government. Meanwhile, soft inflation pressure should not constrain PBOC's monetary easing and policymaker should implement stimulus in the form of rate cut or RRR cut to lower the funding cost and bolster growth
Benign Inflation Dragging The Feet Of BOE Print E-mail
Special Reports | Written by | Jul 07 14 11:15 GMT
While it is widely anticipated that the BOE would leave the Bank rate unchanged at 0.5% in July, the economic backdrop has become more encouraging for a rate hike. Strong PMI in June signaled that GDP growth in 2Q14 might have reached +1%, up from +0.8% in the prior quarter. Meanwhile, the employment market has remained upbeat with the headline ILO-harmonized unemployment rate falling to 6.6% in the 3 months through April from 6.8% previously. The Claimant unemployment rate also dropped to 3.2% in May, the lowest since October 2008. Yet, after going through the stubbornly-high inflation period, UK's inflation outlook has remained benign in the near-term. Indeed, subdued producer price pressures, weakness in food prices, strong currency, and restrained earnings growth are expected to constrain inflation to below the BOE's target this year and next. This has complicated the central bank monetary policy stance. While low inflation pressure has allowed policymakers more rooms to not tightening immediately, stronger-than-expected economic recovery has raised expectations for rate hike. We expect the BOE to begin tightening before the end of the year.
ECB Clarified On TLTRO, Loose Conditions Should Raise Sentiment Print E-mail
Special Reports | Written by | Jul 04 14 03:26 GMT
In the July meeting, the ECB mainly focused on the technical details of the easing measures it announced in the previous month. What the market concerned the most was the constraints that the central bank would impose on banks as they attempt to recycle the proceeds of the TLTRO. President Draghi indicated that there wouldn’t be any constraint of this nature. Draghi also suggested that the aim of lowering the deposit rate into negative territory was to keep the corridor at 25 bps and to avoid any negative repercussions on interbank market volume that could follow any further narrowing. On the preparatory work related to outright purchases of ABS, he noted that a precondition for the ECB to launch such program is a reduction in regulatory capital requirements for financial institutions’ ABS holdings. Moreover, the ECB announced that it would reduce the frequency of its meetings to once every 6 weeks from January 2015 onward and it would publish regular accounts of the policy meetings.
ECB To Stand On Sideline While Risks To Growth Intensifying Print E-mail
Special Reports | Written by | Jul 02 14 06:00 GMT
It is widely expected that the ECB would stand on the sideline in July. Policymakers would take more time to assess the impacts of the stimulus package announced last month. President Draghi would mainly focus on providing more details on the design and expected impact of the measures announced in the June meeting and probably the preparatory work on small scale asset purchases (ABS). However, with the Eurozone's inflation staying at recession level, policymakers are obliged to take more actions going forward.
RBA On Hold Until 1Q15‏ Print E-mail
Special Reports | Written by | Jul 01 14 05:53 GMT
The RBA left the cash unchanged a 2.5% for a 10th month in June. Against the backdrop of a decline in consumer confidence since the release of the Federal Budget and sluggishness of the retail sector, Governor Glenn Steven indicated that it would be prudent to leave the monetary policy as it is for an extended period of time. We expect the central bank to stand on the sideline for the rest of the year and in 1Q15.
BOJ Unlikely Moved By Inflation Data Print E-mail
Special Reports | Written by | Jun 30 14 11:12 GMT
The nationwide inflation CPI rose to +3.7% y/y in May, up from +3.4% in April. Core CPI (excl. fresh food) rose to +3.4% from +3.2% in April while core-core CPI (excl. food and energy) gained +2.2% after April’s +2.3% Adjusted for the effect of April’s consumption tax hike, the core and core-core readings probably rose +1.4% (April: +1.5%), and +0.5% (April: +0.8%) respectively. While both nationwide headline and core inflation accelerated in May, core-core inflation actually peaked. Meanwhile, the month-over-month nationwide headline CPI was mainly driven by petroleum products, public utilities fees and public services, rather than durable goods and general services (excl. public services). The core Tokyo CPI, leading indicator of nationwide inflation, rose a 14th month to +2.8% in June, after the same increase in May. Excluding April VAT hike, the core reading rose +0.9% y/y.
RBNZ To Hike OCR For Third Consecutive Month Print E-mail
Special Reports | Written by | Jun 10 14 11:12 GMT
A further hike of +25 bps in the OCR to 3.25% by the RBNZ in June is largely priced in. While recent economic indicators have shown some resistance to New Zealand's growth, others suggested that the country's recovery remained on track. We expect the central bank would largely maintain the stance made at the March MPS, i.e. that the outlook for the economy and inflation pressures indicates that further normalization of monetary policy is needed over time. While we expect the chance another rate hike in July is 50/50, we believe further tightening would seen in November and December.
Chinese Monetary Easing to Continue Despite Upside Surprise in Inflation Print E-mail
Special Reports | Written by | Jun 10 14 10:41 GMT
The People's Bank of China announced a targeted 50bp RRR cut, effective on June 16, for qualified banks so as to supporting micro and rural loans. New rural-related loans accounting for no less than 50% of total new loans issued in 2013, and rural-related loan balance as a percentage of total loan balance exceeding 30% as of end-2013 OR banks' MSE exposure meeting the same specific ratios, i.e. 50% of new loans and 30% of total loan balance, can enjoy this preferential treatment. The central bank suggested that around 2/3 of city commercial banks, 80% of non-county rural commercial banks and 90% of non-county rural cooperative banks. The PBOC also reduced the RRR for finance companies, financial leasing companies and auto finance companies by -50 bps. These measures follow the -200 bp RRR cut for county-level rural commercial banks and -50 bp cut for rural cooperatives announced on April 22.
ECB Announced A Huge Package Of Easing, Focusing Of Reducing Funding Cost Print E-mail
Special Reports | Written by | Jun 06 14 04:02 GMT
The ECB announced a package of easing measures at the June meeting. Through rate cuts, targeted long-term refinancing operations (TLTRO) and extensions of for the main refinancing operations (MRO), the central bank intended to boost growth in the real economy through lowering banks' funding costs. At the press conference, President Mario Draghi hinted that further rate cuts are less likely while opening the door to the so-called 'private QE' as he talked about the 'preparatory work on ABS purchases'. The euro rebounded after an initial selloff as policymakers signaled that they would take quite some time to assess the impacts of these measures, meaning that no further easing in the near future.
BOC Acknowledged Faster-Than-Expected Pickup In Inflation, But Warned Of Downside Risks Print E-mail
Special Reports | Written by | Jun 05 14 03:16 GMT
The BOC left the policy rate unchanged at 1% in June but acknowledged that headline inflation has risen back to target 'sooner than anticipated' while core 'has drifted up slightly'. Yet, it also warned of the downside risks stemming from slowdown in global economic growth. Specifically, the central bank indicated that growth in the US, its largest trading partner, may not be as strong as expected. On the monetary policy outlook, policymakers reiterated 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 Left Cash Rate At 2.5%, But Warned Of Strong Aussie Despite Drop In Commodity Prices Print E-mail
Special Reports | Written by | Jun 03 14 08:39 GMT
The RBA without surprise left the cash rate unchanged at 2.5% and maintained a neutral bias in the monetary statement. Policymakers were modestly more optimistic over the economic developments and anticipated improvement in the outlook for non-mining capex. A notable change was seen in the reference to the exchange rate. While continuing to warn against the strong AUD, the central bank highlighted the decline in commodity prices relative to stability in exchange rate. The RBA would maintain interest rates at the current levels for the rest of the year.
China's Property Market Downturn To Damp Economic Growth, More Easing Needed Print E-mail
Special Reports | Written by | May 30 14 08:43 GMT
It has been increasingly worrisome that the property market in China is undergoing a downturn which might prove to be more severe than previously anticipated. With the government’s GDP growth target set at around +7.5% this year, a sharper than expected deterioration in the housing market should raise the chance of weaker growth. Yet, given that this downturn is policy-driven, government actions can be taken to prevent the disastrous decline. We expect the government to implement further monetary easing in coming weeks, probably in the forms of RRR cut or rate cut so as reduce financing costs in the market.
Draghi's Potential Remedies For Negative Spiral Related To Inflation, Expectations And Credit Print E-mail
Special Reports | Written by | May 27 14 04:46 GMT
In his speech before the ECB policy forum in Portugal, President Mario Draghi warned of 'a negative spiral' between 'low inflation, falling inflation expectations and credit' facing by the Eurozone. He stressed that the risk is even higher in stressed countries. He also indicated that, in addition to the disinflationary pressure, credit constraints are 'putting a brake on the recovery' in these countries. While not stating his assessment on inflation expectations, Draghi omitted the standard ECB reference that 'medium- to long-term inflation expectations remain firmly anchored, in line with price stability'. In the speech, the President also discussed different policy actions in various scenarios. We expect the most likely move in June would be a cut in the main refi rate and the deposit rate.
SNB Unlikely Affected By ECB's Easing, Deflation Probably The Trigger Print E-mail
Special Reports | Written by | May 26 14 08:42 GMT
The euro has been under pressure since ECB President Mario Draghi indicated in the May meeting that the members are ready for more easing in June. The single currency has dropped -0.9%, -0.88% and -0.8% against the US dollar, Japanese yen and British pound since then. This is reasonable as central banks in the US, Japan and the UK are either talking about tightening or trimming monetary easing, while the ECB is about ease further. However, we also notice that EUR/CHF has stayed largely flat during the period, staying above the floor of 1.2 introduced by the SNB in September 2011. We do not expect ECB's easing would trigger the SNB to change its currency policy. Rather, further disappointment from inflation might lead policymakers to lift the floor, as well as other measures including capital control or negative interest rates
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