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Action Insight: Special Reports

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Dovish Draghi Does Not Mean ECB Would Act Further In September Print E-mail
Special Reports | Written by | Aug 27 14 06:31 GMT
Selloff of the euro continues after ECB president Mario Draghi's speech last week signaled a change in the central bank rhetoric, fueling speculations that the central bank would push forward its QE schedule. While raising concerns over the worsening inflation expectations in the medium term, the president also focused on unemployment. He also urged for actions on 'both sides of the economy, suggesting deepening of fiscal coordination and speeding up structural reforms, in accompaniment with accommodative monetary policy. Despite Draghi's dovish comments, we doubt how many of the members shared his views. Meanwhile, with the TLTROs and ABS purchased not yet started, we do not see high possibility that the ECB would accelerate QE measures in coming months.
Yellen's Speech Was Balanced, Yet Dovish Print E-mail
Special Reports | Written by | Aug 25 14 03:11 GMT
Fed Chair Janet Yellen delivered a balanced speech regarding the US labor market and monetary policy in the Jackson Hole symposium. She acknowledged that recent labor market data have performed better than the Fed's forecasts and discussed the cyclical and structural factors contributing to the current employment situation. Yellen judged that cyclical factors remained prominent as significant underutilization remains. Therefore, policymakers should stay patient to the gradual move toward the exit. Overall, the comments have not changed the dovish stance of the Fed and have not done much to alter the central bank's monetary policy outlook.
FOMC Minutes Appeared Hawkish As Members Discussed Exit Principles In Details Print E-mail
Special Reports | Written by | Aug 21 14 04:58 GMT
The FOMC minutes for the July meeting unveiled that policymakers had detailed discussion of the exit strategy. The Fed has also planned to officially update their exit principles later this year. We expect to see the update in September. On the economic outlook, the member acknowledged the improvement in the job market. Yet, they remained divided over whether the unemployment rate served as an accurate indicator of the labor market conditions. The staff revised potential growth lower and inflation higher while expecting inflation to stay below the Fed's mandate for several years. The staff also lowered the unemployment rate forecast in response to the faster decline in the unemployment rate.
BOE Split, Two Members Opted to Hike Rate in August Print E-mail
Special Reports | Written by | Aug 20 14 11:05 GMT
Surprisingly, two MPC members voted for raising the BOE’s Bank rate to 0.75% from 0.5% earlier this month, the minutes for the August meeting showed. The dissents, Martin Weale and Ian McCafferty, indicated that 'economic circumstances were sufficient to justify an immediate rise in Bank Rate'. They were not concerned that rate hike would undermine the economic recovery. Rather, they believed that an early rise could help the central bank keep future increases smooth and gradual. The more hawkish minutes have raised speculations of a rate hike in the UK by the end of this year.
RBA Saw Uncertainties in Economy, Left Interest Rates Low for Some Time Print E-mail
Special Reports | Written by | Aug 19 14 05:31 GMT
The RBA minutes for the August meeting confirmed the central bank's guidance that interest rates would stay low for a considerable period of time. The minutes also unveiled that policymakers continued to see significant uncertainties in the economic outlook, as well as a 'notable degree spare capacity in the labor market'. While the Statement on Monetary Policy showed downward revisions of staff's forecast on growth, the members did not see the outlook was 'materially different' and considered 'the implications for the forecasts of the usual assumptions that the cash rate and the exchange rate remained at their current levels and noted that the no-change assumption for the cash rate was consistent with market expectations over the near term'.
The Week Ahead – All On The US: Jackson Hole, CPI, FOMC Minutes… Print E-mail
Special Reports | Written by | Aug 18 14 06:35 GMT
The focus of the week will likely be in the US, in particular the annual event of the Jackson Hole symposium beginning on Thursday. With the theme 'Reevaluating Labor Market Dynamics', we look forward in this year's conference to the Fed's latest view on US labor market slack as well as Fed Chair Janet Yellen's keynote speech on Friday (10 am EST). The Fed would likely indicate that there remains a considerate degree of slack in the economy and it is not in a rush for a policy rate hike which would only be gradual. On Tuesday, the inflation report might show headline CPI easing to +2% y/y in July from +2.1% a month ago. Core inflation probably stayed at +1.9%. July housing starts and permits would also be due on the same day. The July FOMC minutes would be released on Wednesday. On Thursday, the Philly Fed survey and flash Markit manufacturing PMI would allow a glimpse of the health of the manufacturing sector.
BOE Downgraded Wage Growth Outlook, Sent Little News about Tightening Print E-mail
Special Reports | Written by | Aug 13 14 13:07 GMT
The BOE's latest quarterly inflation report turned out to be more dovish than expected. Although policymakers raised the GDP growth forecast to +3.5% from +3.0% previously, they were concerned about the "heightened uncertainty" of slack in economy. The central bank also warned of weakness of pay growth and noted that rate hike would be "gradual and limited", a comment that sent no further indication of the BOE's tightening schedule. On global economic outlook, BOE Governor Mark Carney indicated that "geopolitical risks have intensified, and structural adjustment continues in the euro area, where growth is expected to be modest". Meanwhile, "financial conditions are likely to tighten as the global recovery progresses".
Disappointing Chinese Money And Macroeconomic Data Indicate The Need Of Further Easing Print E-mail
Special Reports | Written by | Aug 13 14 09:24 GMT
China money and credit growth surprised to the downside in July, suggesting that growth remains limited while the economy has bottomed out. Meanwhile, a series of macroeconomic data showed further signs of softening in the economic outlook. As unveiled in PBOC's latest money and credit report, broad money supply (M2) grew +13.5% y/y in July, decelerated from +14.7% a month ago. While a high base effect in July 2013 might have partial effect, the moderation was driven by the sharp fall of new loans amidst weakness in underlying demand and increased credit and default risks. Outstanding CNY loan growth eased to +13.4% y/y in July from +14% in the prior month. New loans shrank to RMB 385.2B from RMB 1 080B in June, compared with market expectations of RMB 780B. Newly increased Total Social Financing (TSF) slumped to RMB 273.1B from RMB 1.97 trillion in June. From a year ago, TSF grew +16.3% y/y in July, following a +16.9% in the prior month
Japan 2Q14 GDP Contracted -1.7%, 3Q Data Key To BOJ Decision Print E-mail
Special Reports | Written by | Aug 13 14 06:06 GMT
Japan's GDP contracted -1.7% q/q in 2Q14, the biggest decline since 1Q11 when the Great East Japan Earthquake occurred. From a year ago, real GDP contracted -0.1%. The GDP deflator rose 1.7% q/q, or 2% y/y, in the second quarter. The contraction was largely in line with expectations and was mainly driven by the payback of the front-loaded demand ahead of the April VAT hike, a constraint on capex amidst the end of PC replacement demand accompanying the termination of Windows XP support and strengthened emissions regulations on special diesel vehicles based on the Off-Road Law. However, net exports contributed +1.1% to growth as decline in imports (-5.6% q/q) outpaced that of exports (-0.4% q/q).
The Week Ahead - Asia To Focus On Chinese Macro, UK's Inflation Report To Reduce Slack Print E-mail
Special Reports | Written by | Aug 11 14 08:46 GMT
In a rather surprising move, the RBA revised down its growth forecast by a quarter percentage point for both 2014 and 2015 to +2.5% and +3% respectively. The central bank indicated that 'the differences are well within usual ranges of uncertainty for the forecasts'. While the budget worries have eased, the central bank remained concerned about the outlook for non-mining investment, where companies report that they are 'reluctant to invest until they see a sustained period of strong demand'. Due to the repeal of the carbon tax, the RBA lowered headline inflation by -0.75% over the year to June 2015 (mid-point at 2.75%). Underlying inflation was reduced from 2.5% in the year to December 2014 to 2.25% and from 2.75% to 2.25% (mid-point) for the year to June 2015. The central bank reiterated its forward guidance of a 'period of stability in interest rates'. On the job market, policymakers do not expected the unemployment rate to begin declining until 2016. This was compared with the May Statement that the unemployment rate was likely to begin declining consistently from mid-2015.
Draghi: Ukraine Crisis would Exacerbate the Already-Slow Growth in Eurozone Print E-mail
Special Reports | Written by | Aug 07 14 15:43 GMT
The ECB left the monetary policy on hold, leaving the main refi rate at 0.15% and the deposit rate at minus 0.10%. At the press conference, President Darghi acknowledged the moderation of "growth momentum" and warned that tensions between Ukraine and Russia would pose downside risks to the recovery. Bond yields plummeted as interest rates are expected remain at exceptionally low levels for an extended period of time. Further easing cannot be ruled out as the central bank struggles to revive the economy.
China To Maintain Neutral Monetary Stance, Raised Concerns On Inflation Print E-mail
Special Reports | Written by | Aug 06 14 07:54 GMT
In the quarterly Monetary Policy Report for 2Q14, the PBOC acknowledged that economic growth was stable in the first half of the year and expected growth would improve in the second half. It also delivered a more hawkish view over inflation and noted the debt levels have risen too fast. On monetary policy outlook, the central bank reiterated its neutral stance. In our opinion, rising inflation concerns might present limitations for the PBOC to adopt aggressive easing while recent improvements in economic data might have reduced the need for doing do. However, more easing measures are still likely as the government struggles to achieve the growth target of +7.5% this year.
RBA Left Rate Unchanged, Attributed Rise In Inflation To Temporary Factors Print E-mail
Special Reports | Written by | Aug 05 14 08:58 GMT
The RBA left the cash rate unchanged at 2.5% for a year in August, marking the second-longest period of stable interest rates since the RBA started setting the cash rate in the mid-1980s. The accompanying statement delivered few changes to the economic and monetary policy outlook. The RBA noted firmed growth but attributed the rise in inflation to temporary factors. It continued to warn over the strong Australian dollar. Policymakers reiterated that 'the most prudent course is likely to be a period of stability in interest rates' given current economic indicators. .
Central Bank Meetings Grap Focus Of The Week Print E-mail
Special Reports | Written by | Aug 04 14 09:13 GMT
The week ahead is a busy one. Besides monetary policy meetings by RBA, ECB, BOE and BOJ, a number of macroeconomic data to be released throughout the week would give further indications on the world economic developments in the second quarter. In the absence of major US data due this week, the focus would be on the Asia Pacific and Europe.
FOMC Focused On Slack In Job Market Despite Resilient 2Q14 Growth Print E-mail
Special Reports | Written by | Jul 31 14 04:05 GMT
As expected, the FOMC tapered by another US$ 10B in July with few changes in the monetary statement. The reduction in purchase was evenly divided between Treasuries and MBS, taking the former down to US $15B per month and the latter down to US $10B per month. Policymakers acknowledged rebound in the economy in the second quarter of the year, noting 'somewhat diminished' downside risks to inflation and improvements in labor market conditions. Yet, they cautioned that a number of labor market indicators signaled that slacks remained 'significant'. The statement suggested that the Fed is not in any rush to hike interest rates.
Weak Economic Data Unlikely Triggers BOJ To Intensify Stimulus Print E-mail
Special Reports | Written by | Jul 30 14 08:20 GMT
Japan's economic data released over the past 2 weeks underscored the downside risks to the economic and inflation outlook of the world's third largest economy. It has also raised the uncertainty of the BOJ's monetary policy going forward. The BOJ introduced 'Quantitative and Qualitative Monetary Easing' (QQE) in April 2013 to achieve the inflation target of 2%, with a time horizon of about two years. The program would be an open-ended one beyond 2014. We expect to see more guidance from the central bank in the October meeting regarding future stimulus measures in light of the current economic backdrop.
Upbeat Chinese PMI Reflects Feed-Through Of Stimulus, More In 2H14 Print E-mail
Special Reports | Written by | Jul 25 14 02:42 GMT
Chinese economic growth has shown signs of gathering momentum again, thanks to the government's stimulus measures. Following the better-than-expected 2Q14 GDP growth, the preliminary manufacturing PMI by HSBC/Markit showed a rise to 52, the highest level in 18 months, in July from 50.7 a month ago. This suggested that the impact of the 'mini-stimulus measures' implemented earlier in the year filtering through. We expect the government to continue to add more stimuli to the market so as to boost growth for achieving this year's GDP growth target at around +7.5%.
RBNZ Announced Last Rate Hike Before Pause To Assess Impacts Print E-mail
Special Reports | Written by | Jul 24 14 06:01 GMT
The RBNZ raised the OCR for a 4th consecutive time, by +25 bps to 3.5%, in July. The central bank also signaled to pause in coming months so as to assess the impact of the first 100 bps of policy normalization. Yet, the outlook of the monetary policy continues to be tightening. On the economic outlook, the central bank remained about the economy, expecting growth of +3.7% across 2014. Concerning slower growth in New Zealand’s trading partners in early 2014, the RBNZ noted it was driven by temporary factors. Policymakers also noted a more moderate inflation outlook. Kiwi, the level of which was judged as “unjustified and unsustainable', dropped modestly after the announcement although the decision came in line with expectations. We forecast the RBNZ to tightening in December.
BOE Minutes Toned Down Rate Hike Speculations Print E-mail
Special Reports | Written by | Jul 23 14 10:13 GMT
Despite rising growth momentum, BOE policymakers remained divided on whether when to start tightening. As shown in the minutes for the July meeting, the members unanimously voted to leave the Bank rate unchanged at 0.5% and the size of the asset purchase program at 375B pound. There were discussions about an early rate hike but no consensus had been reached. While some believed risks that a rate hike would undermine the recovery were decreasing, others did not think a rate hike is imminent as there were few signs of rising inflationary pressures. The pound fell against the euro as the minutes turned out be less hawkish than previously anticipated.
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.
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