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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.

ECB Extends QE but Tapers Size Print E-mail
Special Reports | Written by | Dec 08 16 15:28 GMT
ECB surprised the market by announcing tapering plan for its bond purchases program. The Governing Council decided to extend the program until December 2017. However, the pace would slow down to 60B euro per month from April 2017, compared with the current 80B euro. The market generally anticipated ECB to extend the program for 6 months without changing the pace of purchases. The market was disappointed. German yields spiked to a one-year high. The single currency soared to a one-month high of 1.0872 immediately after the announcement. However, gains were erased with EURUSD dropping more than -1%, as ECB left the door open to extend QE further beyond December 2017 and/or pick up the pace of bond buying again if the economic conditions deteriorate. Despite disappointing in first sight, the ECB has indeed delivered more than the market had anticipated: 9 months*60B euro = 540B euro vs consensus of 6 months*80B euro = 480b euro. Has the ECB has again disappointed the market by doing more?
BOC Left Rates Unchanged, Differentiating Itself from Fed Print E-mail
Special Reports | Written by | Dec 08 16 05:42 GMT
BOC, as widely anticipated, left the policy rate unchanged at 0.5% in December. The central bank maintained a dovish tone as in recent meetings. While acknowledging that global market conditions have 'strengthened', 'undiminished' uncertainty has continued to undermine 'business confidence and dampening investment in Canada's major trading partners'. Of particular note is that BOC explicitly indicated its different from the Fed, attempting to dampen hopes that BOC would follow the Fed in raising interest rates. It also attributed the recent increase in Canadian treasury yields to US factors, instead of domestic fundamentals. We expect BOC to leave the policy rate unchanged, as well as maintaining a dovish tone, throughout 2017.
RBA Kept Policy Rate Unchanged At 1.5% In December Print E-mail
Special Reports | Written by | Dec 06 16 06:52 GMT
RBA left the cash rate unchanged at 1.5%, as widely anticipated. Little news was seen in the accompany statement with the more notable change was policymakers' acknowledgement in the rise in commodity prices. However, they stopped short of projecting its impacts on growth, for now. Today's announcement lacks indication for the central bank's monetary policy outlook. We expect future moves remain data-dependent but the central bank is not urgent in making another change in the policy rate.
Chinese Manufacturing Activities Improved Further In November Print E-mail
Special Reports | Written by | Dec 02 16 04:54 GMT
The official manufacturing PMI for China climbed +0.5 point higher to 51.7 in November, another month of big increase after October's 0.8-point gain. The non-manufacturing PMI (services and construction activities) soared +0.7 point to 54.7. The services PMI added +1.1 points to 53.7, while the construction PMI slipped -1.4 points to 61.4. The Caixin/Markit version of manufacturing PMI, by contrast, fell to 50.9 in November from a 27-month high of 51.2 a month ago. Despite the fall, Markit noted that it remains the second-highest reading in 2 years and indicates that 'the manufacturing industry continued to pick up steam'. Moreover, although index readings for both output and new orders declined, those 'tracking input and output prices rose at a faster pace to hit their highest levels in 5 years, pointing to further intensification of inflationary pressure'.
OPEC and Non-OPEC Agree to Cut, but Can This Really Boost Oil Prices? Print E-mail
Special Reports | Written by | Dec 01 16 15:30 GMT
To the market's surprise, OPEC announced to cut production to 32.5M bpd, the lower end of the target range indicated in the "Algiers Accord" in September. It also represents a -1.2M bpd, or -3.7%, reduction from October levels. Meanwhile, OPEC noted that non-OPEC countries have also agreed to cut output by -0.6M bpd with half of the contribution coming from Russia. Initial market reaction was buoyant with crude oil prices rallying the highest levels in a month. However, performance of commodity currencies under our coverage was not as robust as expected. Indeed, all of aussie, kiwi and loonie ended the day lower after initial rally, mainly due to a stronger US dollar. Higher oil prices as a result of output cut lift inflation expectations, lifting US dollar and Treasury yields.
Quick Guide to Italian Referendum on Senate Reform Print E-mail
Special Reports | Written by | Nov 30 16 14:49 GMT
Following Brexit and Donald Trump's victory in US presidential election, the Italian referendum this coming Sunday is the latest event that could cause huge volatility in the financial markets. Indeed, with the "no" camp leading in opinion polls, Italian shares and bonds have underperformed of late. The banking sector has suffered most with the FTSE Italia Banks Index losing almost -9% in November. Italy's FTSE MIB index has fallen -2.65% this month, compared with a -0.74% drop in the pan-European Stoxx600 index. Meanwhile, the 10-year Italian/German yield spread widened to a 1.5-year high of 1.874% last Thursday. The market's key concern is that a "no" vote leading to resignation of Prime Minister Matteo Renzi would trigger massive selloff in bank shares, forcing the debt-ridden Banca Monte dei Paschi di Siena to suspend plans for a critical 5B euro capital increase and then making other banks, such as UniCredit, to delay similar plains too. Such risks might be contagious, spreading to other peripheral countries and result in another European financial crisis.
FOMC Minutes Affirmed Rate Hike To Come 'Relatively Soon' Print E-mail
Special Reports | Written by | Nov 24 16 06:26 GMT
The FOMC minutes for the November meeting added little news to the post-meeting statement. Yet, it reinforced the conviction that a Fed funds rate hike would be coming in December. The members generally judged ongoing improvement in the economic outlook. As noted in the minutes, 'almost all of them continued to judge that near-term risks to the economic outlook were roughly balanced'. On the monetary policy, the minutes indicated that 'most participants' judged that 'it could well become appropriate to raise the target range for the federal funds rate relatively soon'.
Weak Renminbi Trend To Continue Print E-mail
Special Reports | Written by | Nov 22 16 10:58 GMT
While USDCNY has risen to levels not seen since 2008, we do not expect the trend to end any time soon. On the contrary, we expect PBOC to continue to allow renminbi depreciation over the coming year. While this has been the government's policy to stimulate growth, retaliatory depreciation cannot be ruled out should Donald Trump adopt trade restrictions against China, as he promised during the election. Meanwhile, China's FX reserve would continue to fall as the government continues to sell foreign currencies so as to manage renminbi's decline. We acknowledge the rise in CFETS index over the past few weeks. However, we believe this is only the government's attempt to manage the pace of currency depreciation against the sharp rally in US dollar. This should not be interpreted as a policy change from its preferred renminbi weakness.
RBA Reiterated Neutral Bias In November Minutes Print E-mail
Special Reports | Written by | Nov 15 16 06:50 GMT
The RBA minutes for the November meeting delivered a neutral bias but sent little new information following the meeting statement and the Statement of Monetary Policy. The central bank remained cautiously optimistic over the growth outlook, suggesting that rising commodity prices had improved the outlook for nominal growth in the economy, despite 'considerable uncertainty' in the labor market. Policymakers saw downside risks on inflation but retained that the overall risk to inflation 'appeared to be more balanced. They reiterated that previous monetary easing should help achieve the +2% inflation target over time. Meanwhile, RBA remained concerned that the strength in housing price and Australian dollar would complicate its monetary policy stance.
China's October Data: Growth Momentum Not Strong Print E-mail
Special Reports | Written by | Nov 14 16 11:14 GMT
Chinese macroeconomic data were mixed in October, offering few hints that the economic outlook is improving. Industrial production (IP) grew +6.1% y/y in October, same pace as a month ago but missed expectations of +6.2%. Retail sales gained +10% y/y last month, compared with +10.7% as expected and in September. Urban fixed asset investment continued to pick up from the exceptionally low level in July, expanding +8.3% y/y in October, up from +8.2% as expected and in September. Private sector investment showed further improvement but still stayed near historically low levels. Last week, China's trade report showed that its imports of major commodities slowed in October while inflation showed improvement for the month.
RBNZ Ends Easing Cycle With -25 Bps Cut Print E-mail
Special Reports | Written by | Nov 10 16 03:48 GMT
RBNZ cut the OCR by -25 bps to a new record low of 1.75%. The move was widely anticipated as the central bank had hinted about further easing in previous meetings. The accompanying statement was neutral (not dovish enough to expect further rate cut in coming months) as policymakers suggested that the policy rate would most probably remain at this level for an extended period. Governor Graeme Wheeler signaled the end of the current easing cycle at the press conference, noting that 'at this stage we think that we won’t need another cut'. Yet, he added that 'numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly'.
High Uncertainty And Volatility Dominate Financial Markets As Trump Wins Print E-mail
Special Reports | Written by | Nov 09 16 11:17 GMT
To the surprise of every one, Donald Trump is elected as the 45th president of the United States. Trump got 289 of the 538 electoral college votes to be the president-elect. Not only has he taken all of his 'must-win' states, he has also won many of the 'swing' states including Florida, Ohio, Iowa and North Carolina. Meanwhile, Republicans keep control of both the House of Representatives and the Senate. Financial markets have been trading with huge volatility as, despite a close race, polls had been suggesting a Clinton victory. Asian equities slumped before recovering in late trading sessions. US dollar slumped against major currencies while gold rallied on safe-haven demand. We expect S&P 500 to break below 2000, hovering around that level before recovering to about 2050 by the year end. Emerging market shares are worse off amidst uncertainties of Trump's implementation of his promises on fiscal stimulus, immigration, and trade.
Hawkish BOE Removed Easing Bias Print E-mail
Special Reports | Written by | Nov 03 16 15:40 GMT
British pound rallied as BOE removed rate cut bias. GBPUSD soared to almost a one-month high of 1.2494 while EURGDP plunged to as low as 0.8856. Governor Mark Carney suggested the central bank has "a neutral bias around policy going forward" as the "monetary policy can respond in either direction". The members voted unanimously to leave the policy rate unchanged this month. The chance of a rate cut this year has become very remote. Certainly, the pound's rally is further boosted by a UK court ruling that the government must hold a vote in Parliament before starting the two-year countdown to Brexit, raising uncertainty on whether PM Theresa May would be able to trigger Article 50 by next March as she indicated.
Fed Upgrades Inflation Outlook, Getting Ready For December Rate Hike Print E-mail
Special Reports | Written by | Nov 03 16 02:34 GMT
While refraining from explicitly noting the timing the next rate hike, the FOMC has sent strong signal that the action would be taken in December. Several changes in the accompanying statement of the November meeting indicated a rate hike is coming. Most importantly, the Fed upgraded its inflation assessment, expecting inflation to rise to the +2% target in the medium term on dissipation of a number transitory factors. The Fed, indeed, suggested in the statement that 'the case for an increase in the federal funds rate has continued to strengthen' but the members decided to 'wait for some further evidence of continued progress toward its objectives'.
RBA Less Urgent to Cut Again Print E-mail
Special Reports | Written by | Nov 01 16 13:24 GMT
Aussie's rally accelerated in US trading, jumping around +1% to a 4-day high as the market increasingly believes that the RBA would be keeping its policy rate unchanged for some time. In November, the central bank left the cash rate unchanged at 1.5% and delivered a more neutral stance than in previous months. While maintaining the economic growth and inflation assessment unchanged, it indicated that the updated staff projections due Friday should be similar to what was estimated 3 months ago. Although policymakers generally anticipate growth to be close next year, they were less convinced about the momentum of the employment market and consumer spending, and were mixed in the assessment of the housing market.
Policy Divergence to Support USDCAD despite Short-term Volatility Print E-mail
Special Reports | Written by | Oct 25 16 11:50 GMT
Comments from BOC Governor Poloz had triggered a bit of volatility in loonie's trading. USDCAD declined from a 7-month high of 1.3397 following Poloz's speech as the market interpreted that the central bank would wait for the next 18 months or so for another rate cut. Loses were then pared as the Governor then clarified that the reference was related to the time for the output gap to close. The currency pair settled at 1.3285, down -0.35% for the day. We expect policy divergence between the Fed and BOC should support USDCAD strength in coming months.
Dovish ECB Awaits Economic Forecasts For Action In December Print E-mail
Special Reports | Written by | Oct 21 16 06:19 GMT
The October ECB meeting was a dovish one although policymakers left the policy rate and the QE program unchanged. President Mario Draghi indicated that there were no discussions about tapering or extending QE at the meeting. Yet, he reassured that 'an abrupt end to QE is unlikely'. It is getting more likely that ECB would act again in December as the accompanying statement suggested explicitly that the new staff macroeconomic projections due by then would help the council's assessment. In October, ECB kept the main refi rate at 0%, and the marginal lending facility rate and the deposit facility rate at at 0.25% and -0.40%, respectively. It would continue buying assets at a monthly pace of 80B euro at least until March 2017, with any extension to the program contingent on whether inflation is evolving as expected toward the ECB's 2% target. The central bank reiterated that interest rates would 'remain at present or lower levels for an extended period of time', and 'well past' the horizon of the asset purchase program.
BOC More Dovish Than Expected, Cut Growth And Inflation Forecasts Print E-mail
Special Reports | Written by | Oct 20 16 04:32 GMT
While the Bank of Canada left the policy rate unchanged at 0.5% as expected, it revised lower the economic growth and inflation outlooks. GDP is expected to grow more slowly this year and in 2017, compared with July's forecasts, as dragged by the housing market and exports. Inflation is also revised lower due to widening of the output gap which is now expected to close only around mid-2018, half a year later than what was projected in July. The tone of the central bank also turned more dovish than previously, reflecting caution over the longer-term economic outlook. Surprisingly Canadian dollar strengthened after the announcement, rising to a 1-month high against USD, before retreat. We believe the rally was driven by oil's surge.
China's September Data Match Expectations Print E-mail
Special Reports | Written by | Oct 19 16 08:40 GMT
The latest set of Chinese macroeconomic data largely confirmed the recent growth trend which is characterized by slower industrial growth and stronger consumption. China's GDP expanded +6.7% y/y in 3Q16, in line with expectations and the prior quarter. Meanwhile, retail sales grew +10.7% y/y in September, up from +10.6% a month ago. In real terms, growth in retail sales, however, decelerated to +9.6% y/y from +10.2% in August. Urban fixed asset investment gained +8.2% y/y in the first 9 months of the year, after rising +8.1% in the first 8 months. On monthly basis, FAI is estimated to have expanded +8.8% y/y in September, up form +8.1% in August.
RBA Wary of Labor And Housing Market Uncertainty; 3Q16 CPI Key To Monetary Policy Outlook Print E-mail
Special Reports | Written by | Oct 18 16 08:14 GMT
The RBA minutes for the October minutes unveiled policymakers’ concerns over the uncertainty in the employment and housing markets. The central bank, similar to those in other developed economies, suggested that the unemployment rate might not be a clear indicator of a country’s labor market situation. The members appeared more uncertain this month than in August about housing market conditions as the minutes stated that the housing market “developments would need to be monitored closely”. Another highlight is that the minutes explicitly indicated that the upcoming inflation report, due next week, would provide an opportunity to assess “the economic outlook, assess the effects of previous reductions in the cash rate and review conditions in the labour and housing markets”. Last time the RBA explicitly referred to an inflation report was in July, which was followed by a rate cut in August.
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