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Action Insight: Special Reports

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FOMC Adjusted Economic Assessment, September Rate Hike Remains Open Print E-mail
Special Reports | Written by | Jul 30 15 06:08 GMT
In its July statement, the FOMC made some changes on its assessment of the current economic conditions. We do not see the very minor change in the forward guidance as advancing the case of a September rate hike, i.e., the likelihood of September tightening has remained largely unchanged before and after this meeting. Adjustment in the monetary policy remains data-dependent, with the key being employment and inflation outlook.
China Might Soon Widen Renminbi Further to Get Included in IMF's SDR Print E-mail
Special Reports | Written by | Jul 29 15 06:56 GMT
Chinese State Council released a statement titled 'Key steps to promote foreign trade' last Friday and a follow-up press release, titled 'Yuan given more flexibility to boost exports' over the weekend. These readily intensified speculations that China would further widen renminbi's trading band. Though the timing is unspecified, we expect it to materialize before IMF's review of the SDR basket in October/November. Indeed, the Chinese government has openly expressed interest to get renminbi included in the Special Drawing Right (SDR) basket. They see this as recognition of renminbi's role as a currency for international trade and investment and a path to the ultimate goal of making renminbi an official reserve currency that rivals the US dollar. The act of band widening would demonstrate China in on the way to full capital account convertibility and its currency is becoming more "freely useable', a key criterion to be included in SDR.
Watch For Forward Guidance In July FOMC Statement Print E-mail
Special Reports | Written by | Jul 27 15 17:26 GMT
The upcoming FOMC meeting in July would be in focus, as the market watches closely on whether the forward guidance would be adjusted in preparation for a rate hike in September. Indeed, it is the Fed practice to change the language in its statement before the beginning of a tightening cycle. Besides this, we expect the Fed to emphasize that any rate decision would be data-dependent. Equally important for the week is the GDP report, due on the day after the FOMC meeting. The market expects GDP expanded +2.6% annualized in the second quarter, following a -0.2% contraction in the first quarter. Separately, durable goods orders (due today) probably gained +3.5% m/m in June, after contracting -1.8% in the prior month.
China PMI Fell To Lowest Level In 15 Months Print E-mail
Special Reports | Written by | Jul 24 15 07:38 GMT
After HSBC terminated its PMI survey for China*, the newly renamed Caixin-Markit flash manufacturing PMI showed a decline to 48.2 in July, the lowest in 15 months. It was worse than June's final reading of 49.4 and consensus of 49.7. Looking into the details, the 'output' index dropped to a 16-month low of 47.3, the 'new orders' index fell -2.2 points to 48.1. Note that 'new orders' and 'new exports orders' flipped to decline, from gain, from the prior month in July. Meanwhile, deterioration of 'output prices' and 'input prices' exacerbated, adding further pressure to PPI deflation and the manufacturing activity. The 'employment conditions' index continued to decline, albeit in a slower pace. Note that the difficulties in assessing this report are that, first, the survey was down during the period of China's stock market crash and second, it's the first survey done by Markit and Caixin, which replaces the 5-year partnership of Markit and HSBC.
RBNZ Cut OCR To 3%, Suggesting More Easing To Come Print E-mail
Special Reports | Written by | Jul 23 15 05:04 GMT
The RBNZ adopted rate cut for a second consecutive month in July, taking the OCR -25 bps lower to 3%. Policymakers noted that inter-meeting information suggested that the growth outlook had softened. They specifically noted that reconstruction activities in Canterbury probably have peaked while New Zealand's dairy exports have fallen sharply. In conclusion of the accompanying statement, the RBNZ noted that 'at this point, some further easing seems likely'. NZD climbed higher in immediate response to the rate decision as the market had priced in a low probability of a -50 bps cut.
BOE Members Voted Unanimously To Keep Rate Unchanged On Greek Uncertainty, Split Expected In August Print E-mail
Special Reports | Written by | Jul 22 15 11:26 GMT
BOE minutes for the July meeting unveiled that policymakers voted unanimously (9-0) to keep the Bank rate unchanged at 0.5% and the asset purchase program at 375B pound. Yet, the minutes also showed that debate over rate hike had intensified. The members talked about the Greek crisis and indicated that the uncertainty arisen from which was a 'very material factor' in the policy decision. It was noted that absent that uncertainty, the decision between holding Bank rate at its current level versus a small increase was becoming more finely balanced'. The minutes, in addition to Governor Mark Carney’s comments that rate hike is around the corner of this year, sent British pound to the highest level in 7.5 years.
RBA Saw Improvement In Labor Market Print E-mail
Special Reports | Written by | Jul 21 15 05:38 GMT
The RBA minutes for the July meeting maintained a mildly easing stance, despite comments about improvements in the employment market. Besides domestic economic developments, the minutes briefly discussed the huge volatility of China's stock markets. The central bank believed that sharp fall in equities should not have material impact of China's growth outlook. RBA left the cash rate unchanged at 2% in July
ECB Lifted ELA Cap On Greece, Draghi Called For Debt Relief Print E-mail
Special Reports | Written by | Jul 17 15 04:37 GMT
No doubt, the focus of the ECB meeting was on Greece. The ECB announced to raise the ELA ceiling by 900M euro with the haircuts on collateral unchanged. At the press conference, President Mario Draghi suggested that it is 'not controversial' that a debt relief to Greece is 'necessary'. This echoed IMF's demand earlier this week that the lender threatened to withdraw support for the bailout unless Greece's European leaders agree to substantial debt relief. On monetary policy (conventional and unconventional), the ECB, as widely expected, left the main refi rate unchanged and reiterated that commitment to continue its asset purchase of 60B euro per month at least until September 2016.
BOC Cut Overnight Rate to 0.5%, Downgraded Growth Forecast "Significantly" Print E-mail
Special Reports | Written by | Jul 16 15 04:41 GMT
The Bank of Canada reduced the overnight rate by -25 bps to 0.5%, the lowest level since June 2010. It noted that headline inflation remained weak and was mainly pressured by low energy prices. On economic developments, the central bank acknowledged that the slowdown in growth in 1Q15 was driven by a scaling back in energy investment and weaker than expected non-energy investment. Yet, it expected growth would remain weak in the second quarter. As such, the BOC revised "significantly downgraded" its GDP growth forecasts. We expect the rate cut would provide only limited addition stimulus to the economy.
Chinese GDP Growth Steadied at +7% in 2Q15, June Data Beat Consensus Print E-mail
Special Reports | Written by | Jul 15 15 06:28 GMT
Chinese equities dropped although the government reported that GDP growth in the second quarter stayed at +7%, whilst a series of June macroeconomic data beat expectations. The National Bureau of Statistics reported that GDP of the world’s second largest economy grew +7% y/y in 2Q15, same pace as a quarter ago but exceeded consensus of +6.8%. Activities in June also performed better than the market had anticipated. Retail sales rose +10.6% y/y in June, up from 10.1% in May and expectations of +10.2%. Industrial production expanded +6.8% in June, accelerating from +6.1% in May and exceeded the +6% growth anticipated by the market. Hot weather probably helped the growth through power generation. Urban FAI grew +11.4% in the first 6 months of the year, compared with +11.4% in the first 5 months and expectations of +11.2%. The strength appears to be mainly due to the increase in infrastructure and urban rebuild activities funded by the central government, while private investment remained limited.
Greek Agreed on Tough Deal, Implementation is Key Print E-mail
Special Reports | Written by | Jul 14 15 13:59 GMT
Greece eventually agreed on a deal with its Eurogroup creditors after marathon talks. The process of negotiations, the tone of the statement and the conditions of financial assistance all indicated the lack of trust to the debt-ridden nation. In order to tap the fund of 82-86B euro, the Greek government would have to make tough reforms ranging from sales tax to pensions to the employment market. Greece would also have to create a new asset development fund with as much as 50B euro of assets injected. The assets would eventually be privatized. Of the 50B euro, 12.5B is intended for repayment of ESM funds used for bank recapitalization, 25B is for debt repayments whilst the remaining 12.5B is for growth initiatives. In terms of debt relief, the possibility and the amount would depend of how Greece has delivered on its commitments which would be reviewed after September.
Chinese Growth Slowdown Continues, Further Easing Needed Print E-mail
Special Reports | Written by | Jul 09 15 11:14 GMT
The Chinese Communist government's unprecedented intervention to the stock market has eventually shown some impacts, lifting Chinese equities by the greatest magnitude in 6 years. The CSI 300 index gained +6.4% to close at 3897.6 today. Over the past 4 weeks (since June 12), CSI has fallen as much has -32% while the Shenzhen market has been is down more than -41%. We are concerned that any rebound in the stock market is temporary given the downtrend in economic growth in the world's second largest economy. Meanwhile, we expect the PBOC would accelerate monetary easing in coming months.
Dovish June Minutes Signaled Fed Members' Concerns over Premature Rate Hike Print E-mail
Special Reports | Written by | Jul 09 15 04:43 GMT
The FOMC minutes for the June meeting delivered a dovish message, echoing Chair Janet Yellen's comments in the press conference last month and dampening speculations of a Fed funds rate hike in September. The members generally agreed that the economy was improving, in a right track towards the normalization of the monetary policy. However, many of them believed the conditions for a rate hike had not yet been achieved. Meanwhile, they were concerned about a spillover of the Greek problem to the US. Yet, there was no detailed discussion about the Greek problem in the meeting.
BOE To Stand On Side In July, Despite Rising Wage Pressure Print E-mail
Special Reports | Written by | Jul 07 15 09:30 GMT
While strong wage pressure might raise hope of higher inflation, the BOE in July would most likely leave the Bank rate unchanged at 0.5% and the asset purchase program at 375B pound. With inflation staying close to 0%, increased uncertainty in the impacts of Greece on European economic outlook, and softer speculations of Fed funds rate hike in September, policymakers would prefer to stand on the sideline this month. Meanwhile, the members would also need to digest the Budget report would be due the day before the meeting. We expect the central bank would maintain the status quo throughout the year.
RBA Maintained Cash Rate At 2% Print E-mail
Special Reports | Written by | Jul 07 15 05:46 GMT
RBA announced to leave the cash rate unchanged at 2% for a second consecutive month and indicated that current economic environment warrants an accommodative monetary policy .As mentioned in the statement, policymakers retained the view that growth would be below the longer-term average and the economy would continue to operate 'with a degree of spare capacity for some time'. Inflation would remain soft as labor costs expanded only very gradually. The central bank acknowledged rising property prices, especially in Sydney. Yet, there’s no hint on what would be done other than repeating that it is 'working with other regulators to assess and contain risks that may arise from the housing market'. RBA also talked about the recent fluctuations in markets related to developments in China and Greece, noting 'long-term borrowing rates for most sovereigns and creditworthy private borrowers remain remarkably low'.
Greeks Deliberatively Voted 'No' To Austerity Print E-mail
Special Reports | Written by | Jul 06 15 06:07 GMT
Greece’s referendum suggested that that 61.3% of voters said 'No' to austerity measures, compared with 38.7% who voted "Yes". Greek Prime Minister Alexis Tsipras indicated that Greeks had voted for a "Europe of solidarity and democracy". The result was alarming as opinion polls had been showing 'neck and neck' between 'Yes' and 'No'. EUR plummeted against major currencies, falling -0.64% against USD, -0.56% against GBP and -0.19% against CHF. Equities declined with US stock futures opened sharply lower. In Asian session, Hong Kong’s Hang Seng Index diving -830 points to 25 235 and Japan’s Nikkei losing 500 points to 20 040.
FX 2015 Outlook - USDJPY Limited Print E-mail
Special Reports | Written by | Jun 16 15 03:31 GMT
Japan's economy has shown signs of recovery. GDP growth accelerated to an annualized +3.9% in 1Q15, from +2.4% initially estimated and +2.8% expected by the market. Upbeat growth was mainly driven by a +2.2% buildup of inventory but this might not be sustainable in coming quarters. Excluding inventories, growth was +1.7%, compared with +0.4% estimated previously. Headline inflation moderated sharply to +0.6% y/y in April from +2.3% in March as the April 2014 consumption tax rate hike fell out of the price index. Price levels in Japan have remained soft, triggering BOJ to postpone in May its expected timing of achieving the +2% target. The labor market has continued to improve with the unemployment rate falling for a third consecutive month, to 3.3%, in April. Labor cash earnings accelerated to +0.9% y/y in April, compared with 0% a month ago and consensus of +0.3%. If the economy continues to move in this direction, spare capacity would be reduced and employment would pick up further. The developments would eventually reflect in higher level of inflation, making BOJ less obliged to adopt further monetary easing. Nonetheless, it is also unlikely for the central bank to tapering off its asset purchase program worth of 80 trillion a year in coming 2 to 3 years
FOMC Preview: No Rate Hike in June, But Probably Soon Print E-mail
Special Reports | Written by | Jun 16 15 03:27 GMT
Whilst the Fed has indicated that policymakers won't tighten in June, the upcoming meeting on Wednesday is still closely watched. Following the meeting, the Fed would release the latest economic whilst Chair Janet Yellen will hold a press conference. We believe recent economic data should ease concerns of some members that moderation in 1Q15 would be drive by more than transitory factors. The number of payrolls added in May, robust retail sales and the upbeat Quarterly Service Survey all pointed to a pickup of economic growth in the second half of the year. We retain the view that the Fed would begin hiking interest in September.
RBNZ Cut OCR To 3.25%, On Weaker Inflation Expectations And Demand Outlook Print E-mail
Special Reports | Written by | Jun 11 15 04:46 GMT
RBNZ announced to cut the OCR by -25 bps to 3.25% in June. It also signaled further easing is underway. The rationale for the cut in June was weaker inflation expectations and softer demand outlook. As we noted before, RBNZ refrained from monetary easing, despite worsening economic outlook, amidst concerns of further boosting housing prices in Auckland. With the macro-prudential measures proposed, policymakers have greater flexibility in adopting further easing.
FX 2015 Outlook – European Currencies Continue to Weaken against USD Print E-mail
Special Reports | Written by | Jun 10 15 04:28 GMT
EUR: Eurozone's economic developments have picked up recently. Preliminary reading of GDP growth accelerated to +0.4% q/q in 1Q15 from +0.3% a quarter ago. From a year ago, the economy expanded +1%. Growth in the first quarter was led by France and Italy whist growth in Germany, Europe's biggest economy, slowed to +0.3% from+0.7% in 4Q14. The market was stunned as the 19-nation bloc's growth in the first quarter outpaced that of US and UK. Meanwhile, the lagged impact of the past fall in the euro exchange rate and effect of ECB's QE should point to higher investment in the coming quarters. Inflation has also returned to positive territory with the flash estimate rising to +0.3% y/y in May from a flat reading in April. Headline CPI fell to as low as -0.6% in January. Oil price rebound suggests more positive readings can be seen in coming months.
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