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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.

China Watch: Flash PMI Signaled Manufacturing Activities Expanded. Deflation Risks Heightened, An Official Warned Print E-mail
Special Reports | Written by | Feb 25 15 10:36 GMT
China's flash manufacturing PMI by HSBC surprisingly drifted back to above 50, a zone indicating expansion of the sector, in February. The headline reading bounced back to a 4- month of 50.1 from 49.7 in January while the flash manufacturing output index rose to a 5- month high of 50.8. According to HSBC, the data signaled “a marginal improvement in the Chinese manufacturing sector going into the Chinese New Year period in February”. Domestic demand strengthened while new export orders contracted for the first time since April 2014. Both input and output prices remain in contraction”. Yet, HSBC suggested that “domestic economic activity is likely to remain sluggish and external demand looks uncertain. We believe more policy easing is still warranted at the current stage to support growth”.
Upbeat Yellen Signaled Fed's On Course For Hike Later This Year Print E-mail
Special Reports | Written by | Feb 25 15 06:29 GMT
Fed Chair Janet Yellen in the congressional testimony reiterated the message that the rate hike schedule would be data-dependant, rather than time-dependent. She explained the meaning of the "patient" language, which implies that the economic conditions are unlikely to warrant a rate hike for "at least the next couple of FOMC meetings". Yellen, however, indicated that the committee would change its forward guidance in advance of rate hikes, though the change does not automatically signal a rate hike in a couple of meetings. The economic outlook was largely the same as what was delivered in the FOMC minutes. The central bank acknowledged "considerable progress" has been achieved in the recovery in the labor market whilst there remains room for further improvement.
A Third Of BOJ Members Skeptical Over The Inflation Target Print E-mail
Special Reports | Written by | Feb 23 15 10:49 GMT
The minutes for the January BOJ meeting unveiled that 3 out of the 9 members doubted whether inflation target can be met, as falling oil prices have dragged down prices levels further. At the meeting, the central bank lowered its inflation forecast for fiscal 2015 starting in April to +1% from +1.7% previously. The outlook was raised to +2.2% in fiscal 2016 from +2.1% previously. In the post-meeting statement of the February meeting, the BOJ forecast, excluding the effects of the tax hike, that inflation would hover around 0.5%, down from previous estimate of 0.5-1.0% as lower energy costs would prolong the period of returning to inflation target of 2%.
BOE Minutes Unveiled Division in Monetary Outlook Print E-mail
Special Reports | Written by | Feb 19 15 06:00 GMT
The BOE minutes showed that the members voted unanimously to keep the Bank rate unchanged at 0.5% and the asset purchase program at 375B pound. Yet, the details unveiled that division was seen among the members over the monetary policy outlook. 2 members (presumably Martin Weale and Ian McCafferty) still favored rate hike later this year while another suggested that chance of tightening and easing in the next move was similar. Overall, the minutes continued little news after release of the quarterly inflation report last week.
Fed Revised Lower Short-Term Inflation Forecast, Remained Patient On Tightening Print E-mail
Special Reports | Written by | Feb 19 15 03:17 GMT
The FOMC minutes for the January meeting appears more dovish than expected. Policymakers retained the 'patient' language as some members were concerned that removal of which too soon would trigger the market to price in tightening too quickly. On the economic outlook, the near-term inflation outlook was revised slightly lower due to further declines in oil prices, whilst the inflation forecast for 2016 and 2017 was 'essentially unchanged'.
BOJ Kept Powder Dry As It Raised Economic Outlook Print E-mail
Special Reports | Written by | Feb 18 15 05:53 GMT
The BOJ left the monetary stance unchanged in February. That is it would conduct money market operations so as to increase the monetary base at an annual pace of about 80 trillion yen. Policymakers appeared more upbeat over the economic outlook although GDP growth in 4Q14 missed expectations. Acknowledging that lower energy costs would prolong the period of returning to inflation target of 2%, the BOJ, excluding the effects of the tax hike, forecast inflation would hover around 0.5%, down from previous estimate of 0.5-1.0%.
RBA Cut Rate In February As Growth Prospects Softened, Accompanied By Statement On Monetary Policy Print E-mail
Special Reports | Written by | Feb 17 15 05:36 GMT
Following the release of the Statement on Monetary Policy and the RBA Governor's parliamentary testimony, the RBA minutes for the Tuesday meeting contain little news about the economic and monetary policy outlook of Australia. Yet, policymakers explained in the minutes that the -25bps rate cut was implemented in February, instead of March, as they could explain its decision in more details in the subsequent Statement on Monetary Policy. This signaled another cut in March would be remote. The central bank cautioned over the developments in the housing market. Meanwhile, while acknowledging that the Australian dollar had dropped over recent months, 'it remained above most estimates of its fundamental value'.
GBP Rallied as BOE Expects Inflation to Accelerate towards end-2015, Upgrades Growth Forecasts Print E-mail
Special Reports | Written by | Feb 12 15 12:41 GMT
The latest BOE inflation report suggested that inflation might fall below 0% in the near-term. Yet, following a temporary fall, it would recover towards the year-end. Governor Mark Carney affirmed there's no threat of persistent deflation ahead. The BOE expected low energy prices would benefit the economy in the longer term through boosting UK real income growth and sustaining the "robust expansion in UK domestic demand". Policymakers noted that it is appropriate to leave the Bank rate unchanged at 0.5% and maintain the asset purchase program at 375B pound so as drive inflation back to the 2% target within 2 years. The pound rallied after release of the report.
FX 2015 Outlook – Revisions To Express USD Strength Print E-mail
Special Reports | Written by | Feb 12 15 10:43 GMT
The massive selloff in oil prices since June 2014 has led to lower inflation and inflation expectations worldwide. Global central banks which have been struggling to bring inflation to normal levels are put is a more difficult situation and hence feel obliged to adapt more accommodative measures to combat real/potential deflation risks. Anticipating ECB's QE extension, the SNB surprisingly announced to remove to EURCHF peg in January 15. This has created turbulence in the FX market, resulting in strong rally of Swiss franc against the US dollar and the euro. Currency funds with heavy exposure of long CHF got hammered seriously. ECB's additional asset purchases have included sovereign bonds and the size (EUR60B/month) came in larger than market expectations. BOC and RBA unexpectedly cut policies rates while the RBNZ shifted its monetary stance to neutral from tightening. The BOE voted unanimously to keep interest rates unchanged, while 2 voters had proposed to hike rates over the past few months. The Fed's largely consistent stance has triggered US dollar's strength, hinging on rising expectations of Fed funds rate hike in June
Further Data Point To Weakness In Chinese Demand Print E-mail
Special Reports | Written by | Feb 10 15 06:43 GMT
January data released so far showed more evidence for growth slowdown in China. Headline inflation eased to +0.8% y/y in January from +1.5% in December. This represents the first below-1% reading since 2009. Non-food prices rose +0.6% y/y, slowing from +0.8% previously while food inflation moderated to +1.1% y/y from +2.9% in December. While the Lunar New Year factor (high base) might take into account for the disappointment, the trend remains worrisome. Moreover, PPI deflation accelerated to -4.3% y/y in January from -3.3% a month ago, driven by a sharp decline in mining PPI.
PBOC Cut RRR, More To Come Print E-mail
Special Reports | Written by | Feb 05 15 05:40 GMT
PBOC, effective February 5, trimmed the RRR by -50 bps for all the banks, cut the RRR by an extra -50 bps for some municipal and rural commercial banks whose lending to small enterprises reached certain threshold level and lowered the RRR for China Agriculture Development Bank by -450 bps. The move, while anticipated against the backdrop of recent disappointing economic data, came earlier than what the market had expected. The fact that the move came in ahead of the release of January indicators might indicate downside surprises to the developments in the beginning of the year.
Facing Renewed Currency War, BOE Obliged To Keep Bank Rate Low Print E-mail
Special Reports | Written by | Feb 04 15 05:38 GMT
The BOE meeting due Thursday would be a non-event as policymakers would likely not change the monetary decision and thus the policy statement would not be released. Last month, the members voted unanimously to keep the Bank rate unchanged at 0.5%, compared with 2 members favoring higher rates over the past several meetings. The members also decided in unity to keep asset purchases at 375B pound. We expect the same decision to be made in February. Indeed, it is increasingly likely that BOE’s bank rate would stay unchanged throughout this year.
RBA Cut Rate For The First Time In 18 Months Print E-mail
Special Reports | Written by | Feb 03 15 04:34 GMT
The RBA cut the cash rate for the first time since September 2013, by -25 bps, to a new record low of 2.25% in February. Aussie slumped to a new 2009-low of .7651 following the announcement as the central bank appeared more dovish than anticipated. Following RBNZ's comments that the next rate direction could be up or down, and BOC's surprisingly rate cut last month, the market had priced in a higher chance (two in three) for an RBA rate cut. Disappointing economic data, including a subdued inflation report, weak 3Q14 national accounts, further decline in Australia's commodity prices and falling confidence a sharp drop in confidence suggested further easing is needed for stimulate the economy.
Kiwi Fell To 3.5-Year Low As RBNZ Signaled Next Move Could Be Rate Cut Print E-mail
Special Reports | Written by | Jan 29 15 05:01 GMT
The RBNZ left the OCR unchanged at 3.5% in January. Yet, the market viewed the monetary outlook as neutral/dovish as policymakers suggested that the next rate decision could be hike or cut. The central bank was concerned that headline inflation in the first quarter could flip to negative due to the decline in oil prices. It also remained upset about the exchange rate, noting current level of NZD was “unjustified” and “unsustainable”. The RBNZ cautioned that fiscal consolidation, the reduced dairy payout, the risk of drought, and high exchange rate could weigh on growth. Note that the reference of drought was newly added due to the exceptionally dry weather the early part of summer.
Fed Upgraded Growth And Employment Outlook, Remains Patient In Rate Hike Print E-mail
Special Reports | Written by | Jan 29 15 04:41 GMT
The FOMC meeting unveiled that policymakers got more optimistic over US economic developments, as exemplified in the upgraded assessments in growth and employment outlook. Yet, the Fed noted that 'Inflation has declined further, and this was said to be ‚largely reflecting declines in energy prices'. On the monetary stance, the 'considerable time' guidance language was replaced by 'patient', suggesting that the Fed would not hurry in normalization of the stance of monetary policy. An interesting point to note is that the Fed added 'international developments' as a factor it would be assessing in determining the interest rate outlook. Yet, the meeting should not change the view that the Fed fund rate hike should begin in June.
Greek Election – Anti-Bailout Coalition Government Raises Financial Instability Print E-mail
Special Reports | Written by | Jan 27 15 05:08 GMT
The far-left Syriza party won Greece's general election by a larger-than-expected margin. Securing 149 of 300 seats, Syriza defeated the incumbent New Democracy Party but still fell short of an absolute majority. The latest news suggested that Syriza would form a coalition government with Independent Greek, a small right wing party which also strongly opposes many of the strict conditions imposed in the bailout program. Initial market reaction appeared limited as the election outcome had been largely anticipated. However, in the medium- to long-term, the economic implications to the Eurozone can be far-reached.
ECB Decided to Buy Asset Worth of 60B euro a Month, March through September 2016 Print E-mail
Special Reports | Written by | Jan 22 15 14:34 GMT
Exceeding the consensus forecast of 50B euro or 50B euro in total, ECB's expanded asset purchase program would spend 60B euro per month, from March 2015 through September 2016, in both public and private debts. The program aims at combating deflation and would continue until "a sustained adjustment in the path of inflation" is seen. Meanwhile, the central bank decided to change the pricing of the 6 targeted longer-term refinancing operations (TLTROs) remaining in the market and left the policy rates unchanged. EUR plunged to as low as 1.499 against USD at one point after the announcement.
BOC Cut Rates, Insuring Against Headwind Posed By Oil Price Decline Print E-mail
Special Reports | Written by | Jan 22 15 04:03 GMT
Surprisingly, the BOC announced to cut its overnight rate to 0.75% from 1% in January so as to insure against the risks of further decline in oil prices on inflation and financial stability. Policymakers saw downward pressure on headline inflation from lower energy prices while upward pressure could come from depreciation of Canadian dollar. On net, they were more concerned about the downside risks and focused on the 'material slack' remaining in the economy. The BOC also revised lower its growth and inflation outlook, suggesting further easing cannot be ruled out in coming months.
Unanimous Vote To Keep Rate Unchanged Damped Speculations Of BOE Tightening Print E-mail
Special Reports | Written by | Jan 21 15 11:07 GMT
BOE policymakers dropped rate hike calls as inflation disappointed in recent months. The January minutes indicated that the MPC voted unanimously to keep the Bank rate unchanged at 0.5%, compared with 2 members favoring higher rates over the past several meetings. The members also decided in unity to keep asset purchases at 375B pound. The British pound declined against major currencies after the news as rate hike speculations dampened.
When, What and How of ECB's New QE Program Print E-mail
Special Reports | Written by | Jan 20 15 13:39 GMT
The market is now widely anticipating that the ECB would announce further QE, i.e. including sovereign debts in its asset purchase program, in the meeting on Thursday. The focus now is when, what and how the program would be implemented. It is also the details of the program, rather than the announcement per se, that would move the market. The euro rebounded against both Swiss franc and the US dollar ahead of the meeting. While bargain hunting might be a reason for the rebound, following the excessive selling after SNB's decision of removing the EURCHF peg, another major reason is that the market might be expecting disappointment on Thursday.
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