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Action Insight: Special Reports

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Japan's Quarterly Tankan Survey Reveals Cautiousness In Businesses Print E-mail
Special Reports | Written by | Apr 01 15 11:36 GMT
The latest Tankan survey covering the period of February 25 to March 31 depicted a mixed outlook for Japan's economy. Recovery in business conditions for large manufacturers was unexpectedly slow with business conditions DI large manufacturers staying at +12 compared with market expectations of an improvement to +14. Sentiment in non-manufacturing industries, including real estate, retail, and services for individuals, showed improvement with large non-manufacturer DI rising to +19 from +17 in December. Construction sentiment stayed unchanged from the previous survey with DI remaining at +36, the highest level for all industries. The recovery of business conditions for export-related manufacturing flagged whilst sentiment was upbeat in domestic-demand industries. Sentiment in smaller companies was also mixed with non-manufacturing industries showing more confidence. Among smaller companies, the DI fell to +1 from +4 for manufacturers, but improved modestly to +3 from +1 for non-manufacturers.
Bearish Zhou Stimulated Easing Speculations Print E-mail
Special Reports | Written by | Mar 31 15 05:15 GMT
Following last week's disappointing data release, PBOC Governor Zhou Xiaochuan noted said in the Boao Forum for Asia over the weekend that China's economic growth has slowed 'a bit' too much and called to vigilance over emergence of deflation. He warned that 'China's inflation is also declining, so we need to be vigilant to see if the disinflation trend will continue, and if deflation will happen or not'. These comments raised hopes that the Chinese government would adopt more easing measures soon. Just 2 days after Zhou's comments, the PBOC announced to cut the minimum down payment for certain buyers of a second home to 40%, from 60% previously. We expect policy makers to ease further in coming months, adopting rate cuts and reduction in reserve requirement ratio (RRR) to lower funding costs. There would also be potential relaxation in property policy implementation in 2Q15 to facilitate a stable environment for structural adjustments.
Aussie Remains Bearish amidst Soft Macroeconomic Outlook Print E-mail
Special Reports | Written by | Mar 26 15 12:33 GMT
Similar to other higher-yield currencies, Australian dollar rebounded against the US dollar last week, upon receiving a dovish FOMC statement. AUDUSD has indeed attempted to test 0.8, a level not seen since late January earlier this week. Despite the recovery, we remain bearish over AUD as the macroeconomic outlook of Australia appears to be more and more challenging in coming months. Commodities prices continue to find their bottoms and the situation is exacerbated by the slowdown in Chinese economic growth. The struggle to transition from the mining-led growth to other activities appears tough with business and consumer confidence still lacking. These should put further downside risks to Australia's budget.
Record Low UK Inflation Fueled Deflationary Risk Print E-mail
Special Reports | Written by | Mar 25 15 03:35 GMT
Headline CPI in the UK fell to 0% y/y in February, down from +0.3% in January to the lowest level on record. As the reading was more than 1% below BOE’s +2% target for a 4th straigth month, Governor Mark Carney would have to write another letter of explanation to Chancellor of the Exchequer George Osborne. Core inflation fell -0.2% from January to +1.2%. While the headline reading came in weaker than market expectations, it was in line with BOE’s forecast. As the March minutes stated, 'Bank staff’s central expectation was for CPI inflation to fall to around zero in the February data and remain around that rate for several months'. Therefore, we do not see the February data would have any impact on the central bank’s monetary stance.
SNB Kept Rates Negative, Warned of High CHF and Downgraded Growth Outlook Print E-mail
Special Reports | Written by | Mar 19 15 11:39 GMT
The SNB left the sight deposit interest rate unchanged at -0.75% in March. The target range for the three-month Libor also stayed at -1.25 to -0.25%. The central bank warned of the "significantly overvalued" franc, suggesting "the conditions for the Swiss economy have become more difficult", with "the new exchange-rate situation" (SNB removed the 1.2 EURCHF floor in January). It re-affirmed that intervention on the currency market remains active if necessary, "in order to influence monetary conditions". Policymakers also revised lower the growth and inflation outlook. Indeed, President Thomas Jordan warned that there could be one or more quarters of economic contraction. According to him, "a noticeable weakening in the economy may be expected, particularly in the first half of the year". Swiss franc fell against the US dollar after the announcement while EURCHF continued to trade above 1.5.
Fed Lost 'Patience', Yet Softer Outlook Suggests Rate Hike Unlikely in April and June Print E-mail
Special Reports | Written by | Mar 19 15 01:47 GMT
The Fed removed the 'patient' language in the March FOMC meeting statement. However, downward revision of the economic assessment has made the overall message more dovish than expected. The Fed noted that economic growth to have 'moderated somewhat', compared with January's 'economic activity has been expanding at a solid pace', with weakening of exports growth as part of the factors causing the moderation. It was also unveiled in the staff economic projection that both GDP growth and core inflation forecasts were revised downward for 2015 and 2016. Note, in the reduction in the long-run unemployment forecast, that the Fed now sees no inflationary pressure on the economy even if the unemployment rate falls to as low as 5%. On the rate hike schedule, the Fed noted explicitly that there would be no rate hike in April. While Chair Janet Yellen stated that she could not 'rule out' a rate hike in June, the tone of the statement and the downgrade of economic projections suggested that the first rate hike would come in September the earliest, rather than June.
BOE Cautions: Policy Divergence Would Send EURGBP Further Lower Print E-mail
Special Reports | Written by | Mar 18 15 11:12 GMT
The BOE minutes for the March meeting showed that members voted unanimously to keep the Bank rate at a record low of 0.5% and maintain the asset purchase program at 375B pound. The minutes suggested that 2 members saw the decision as 'finely balanced' but there was no repeat of 1 member staying that the monetary policy could be loosened. Policymakers cautioned over the strength of the pound, noting that extended QE in the ECB and the stronger growth outlook in the UK, when compared with the Eurozone, might lead the pound to go further higher. GBPUSD plunged to a new 4.5 year- low after the minutes, as well as a disappointing employment report.
FOMC Expected to Remove Patience Language, a Step Forward to Tightening Print E-mail
Special Reports | Written by | Mar 17 15 11:44 GMT
The focus of this week's FOMC's meeting hinges the forward guidance. In particular, the market would closely watch whether the sentence that "based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy" would be removed. This act would send a strong signal that the Fed might begin tightening in coming months (market expectations are June or September. As it is widely anticipated that this language would be removed, the updates of the staff economic projection as well as Chair Janet Yellen's comments on the press conference would also be the key. Downgrade of growth outlook should offset hawkishness of removal of the patience language and weigh on the US dollar.
RBA To Cut Rates Further Although Housing Prices Threat Remains Print E-mail
Special Reports | Written by | Mar 17 15 03:23 GMT
Australian dollar dropped as the RBA sounded dovish in the minutes for the March meeting. It suggested that further rate cuts are warranted but policymakers preferred to see more economic data before implementation. Specifically, the central bank was concerned of the inflating housing market and a rate cut might exacerbate the situation. Yet, the sentence, 'On the basis of the current forecasts for growth and inflation, members were of the view that a case to ease monetary policy further might emerge', signaled that further easing would still be likely.
Aggressive Easing Needed As Chinese Data Surprised To The Downside Print E-mail
Special Reports | Written by | Mar 12 15 02:25 GMT
The latest set of Chinese macroeconomic data sent further evidence of slowdown in the world's second largest economy.. Growth in industrial production fell to the Lehman crisis level. Meanwhile, domestic demand remained weak, despite a rebound in exports during in January -February. The downside surprises have led analysts to revise lower their GDP growth forecasts. For instance, Barclays Capital now expects full-year China GDP to growth by +6.8% , compared with government's target of +7% while Deutsche Bank has decided to retain its forecast of +6.8% growth in 1H15. We expect the PBOC to accelerate monetary easing in coming months as fragile industrial production and fixed asset investment should be alarming to the government.
RBNZ Suggests Rate To Stay Unchanged Until 2017 Print E-mail
Special Reports | Written by | Mar 12 15 01:19 GMT
The RBNZ left the OCR unchanged at 3.5% in March and maintained a neutral bias in monetary stance, noting that the next rate decision could be up or down. The RBNZ projects an unchanged OCR out to 1Q17 with the assumption that there's no significant depreciation of the exchange rate from recent levels. However, it raised concerns over the decline in oil prices on inflation, suggesting that a cut would be needed if oil weakness leads to a decline in medium-term inflation expectations. We expect the RBNZ to keep interest rates unchanged throughout this year.
ECB Unveiled Details Of Additional QE, Raised Growth Outlook Print E-mail
Special Reports | Written by | Mar 06 15 02:02 GMT
The ECB unveiled details of how the additional QE program would be implemented. President Draghi affirmed that National Central Banks would begin purchases of bonds issued by sovereigns, agencies and international institutions on March 9. Purchases of public and private sector securities would amount to 60B euro/month would be carried out until the end of September 2016, and beyond (depending on the path of inflation). The latest staff macroeconomic projections reflected the improvement in economic indicators in recent months, the decline in oil prices and weakness in the euro. There were also discussions about Greece's situation in the press conference.
BoC Left Rate Unchanged, Stance More Neutral Print E-mail
Special Reports | Written by | Mar 05 15 02:32 GMT
As expected, the BOC left the monetary policy unchanged in March, following a surprising 25-bps cut in the overnight rate to 0.75% in January. The tone of the accompanying statement appeared more neutral than the previous one, thus trimming market expectations of further rate cuts in coming meetings. Seeing the hit from oil as 'even more front-loaded than projected in January', the BOC might suggest that it would tolerate disappointment in the near-term, with the expectations that growth and inflation would pick up with drivers shifting from oil to 'non-energy exports and investments. We expect the BOC to maintain an accommodative stance in coming meetings but the chance of actual rate cut has indeed diminished.
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'.
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