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Action Insight: Special Reports

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Limited Impacts Expected from PBOC's Belated Easing Print E-mail
Special Reports | Written by | Aug 26 15 12:52 GMT
PBOC cut its policy rates by -25 bps, taking the benchmark one-year lending rate 4.60% and the one-year deposit rate to 1.75%. Meanwhile, it has removed the deposit rate ceiling for time deposits longer than a year, whilst keeping the 1.5x ceiling for time deposits of other duration and demand deposits. The central bank also cut the required reserve ratio (RRR) by -50 bps for all depository financial institutions. Rural financial institutions would have an additional RRR cut of -50 bps, while financial leasing companies and automobile finance companies would have additional reduction of -300bps. This is the 5th consecutive interest rate cut in china's current easing cycle, which began in November, 2014. This is also the second combined interest rate and RRR cut taken during this round of easing.
Fed's Rate Hike Speculations Shrank. Less Likely to Hike Rates in September Print E-mail
Special Reports | Written by | Aug 26 15 12:41 GMT
The China-led global financial market crash has made the case of a September Fed rate hike increasingly unlikely. The market is now pricing in only 24% of a rate hike next month, compared with 40% last week. US financial conditions have weakened against the backdrop of equity slump and rapid depreciation of emerging market currencies. The Fed might think that tightening under such an environment would do more destabilization to the market. Meanwhile, the selloff in energy prices and strength in US dollar have softened inflation expectations, a determining factor of the Fed's monetary decision. These should make the Fed more cautious and would choose stand on the sideline in September.
Euro Glitters In Global Financial Market Crash Print E-mail
Special Reports | Written by | Aug 25 15 06:45 GMT
Concerns over China's economic growth slowdown have intensified over the past 2 weeks. PBOC's announcement to devaluate renminbi on August 11 has caused USDCNY (spot) to soar +3%. The devaluation was interpreted as China's strategy to boost the lukewarm exports, as well as a step further to a free-float renminbi. The decision, accompanied with a series of disappointing Chinese macroeconomic data, has, unfortunately, heightened speculations that the world's biggest growth driver would again miss its target this year. Dampened market confidence is illustrated in extensive selloff in global assets, especially those with close links to Chinese economy. Commodities were hit hard with the CRB commodity index plummeting to a record low after PBOC's devaluation announcement. The index has dropped more than -6% from the beginning of the year. Capital flowing out of China would continue weigh on Chinese assets and renminbi.
Latest Data Suggesting Sustainable Growth In Japan Yet To Come Print E-mail
Special Reports | Written by | Aug 21 15 09:08 GMT
A number of economic data for Japan released during the week suggest that the recovery in the first quarter was rather volatile. With growth remaining unsustainable, the BOJ’s GDP projection of +1.7% for fiscal March 2016 would probably be missed. We indeed expect the central bank to revise lower its estimates in the next update due October 30. The situation has put the BOJ in a tougher position, requiring it to add monetary stimulate to stimulate growth.
July FOMC Minutes Dampened September Tightening Hopes Print E-mail
Special Reports | Written by | Aug 20 15 04:35 GMT
The July FOMC minutes turned out to be more dovish than expected. Despite improvement in various macroeconomic indicators, policymakers believed that more evidence is needed to show that inflation is moving toward goal and the job market improvement is sufficient and sustainable, before they would adopt a rate hike. Although one member preferred to hike interest rates in the July meeting, 'most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point'. The member opting for tightening was also willing to wait for additional data to confirm a judgment to raise the target range. US dollar dropped but bonds strengthened after the minutes on diminished expectations of a rate hike in September. Futures showed that the market is priced in a 36% probability of a rate hike next month, down from about 50% before the minutes were released.
Pleasant Surprise In UK's Core CPI Driven By Timing Factor Print E-mail
Special Reports | Written by | Aug 19 15 10:20 GMT
British pound's strength these two days is mainly driven by the upbeat inflation report for July. Headline CPI rose to +0.1% y/y from a flat reading in June, compared with consensus of another flat reading. What's more surprising was core inflation (all excl. energy, food, alcohol and tobacco) which accelerated to a 5-month high of +1.2% y/y from +0.8% in the prior month. Over the past six months the core CPI has increased +2.2% saar. The main cause of the rise in July was the smaller fall in clothing prices compared with a year ago, a pickup in the volatile air fares, as well as miscellaneous good and services. The re-acceleration of food price deflation, however, offset much of the impact of higher core on the headline, making it way below BOE's 2% target for the 9th consecutive month. Whist the improvement in the core reading is positive, it remains too early to say that a new trend in core inflation has emerged. Yet, if the strength continues, it would be supportive of headline inflation to return to BOE's target in the medium-term, when the base effects of oil and food prices drop out of the annual comparison.
RBA Minutes Offered Little Bias On Monetary Policy Outlook Print E-mail
Special Reports | Written by | Aug 18 15 06:01 GMT
The RBA minutes for the August meeting delivered little new information. The discussions were focused on the central bank's lowering of the growth profile, cessation of the expectations of a rising unemployment and the modest upgrade of average inflation forecast. Indeed, these were already discussed in the Statement of Monetary Policy released earlier this month. In the minutes, policymakers did not office a clear policy bias, other than affirmation that adjustment would be made on a timely basis should there be new information about economic and financial conditions. Policymakers again showed concerns about the surging housing market, reinforcing that regulators would adopt tougher measures to cool down property prices. The August RBA meeting was held before PBOC's abrupt renminbi devaluation. Yet, while we are unable to see policymakers' gauge of the situation, we continue to expect the uncertainty of China's growth prospect the major downside to Australia's outlook.
ECB Sees China's Financial Markets And Fed's Rate Hike Key Downside Risks To Eurozone Recovery Print E-mail
Special Reports | Written by | Aug 14 15 09:43 GMT
The ECB minutes for the July meeting unveiled that policy remained cautiously optimistic over the economic outlook and decided unanimously to continue implementing asset purchases of 60B euro per month until September 2016. The central bank again pledged to respond timely to an unwarranted tightening of the monetary policy stance or a change in the medium-term outlook for price stability. The ECB noted that renminbi volatility and Fed's rate hike could impede the vulnerable recovery in the Eurozone.
China Watch: Growth Outlook Deteriorated Further. RMB Devaluation Does Little Help Print E-mail
Special Reports | Written by | Aug 12 15 13:10 GMT
More bad news from China! The Statistics Bureau today released a bunch of disappointing macroeconomic data for July, with growth in retail sales, industrial production and fixed asset investment all below expectations. The set of data indicated that recent stock market crash likely has restrained consumer spending, whilst bank lending has been diverted to equity buying requested by the government. Today, the PBOC set the fix of USD/CNY at 6.33, guiding the renminbi down by another -1.6% after the -1.9% devaluation on the previous day. PBOC's announcement to cut the renminbi's (CNY) reference rate by -1.9% on August 11 was following the weak trade report due over the weekend. The move is a measure to boost exports and stimulate economic growth, as well as a step forward to allow the currency's level to be increasingly determined by market forces and ultimately be included in IMF's SDR. In our opinion, the impact of renminbi devaluation on China's growth, in the absence of more aggressive monetary stimulus..
China Slowdown Continues to Weigh on Aussie Print E-mail
Special Reports | Written by | Aug 11 15 12:06 GMT
We stay bearish on AUDUSD, retaining the view that the pair would reach at least 0.7 by 1Q16. Despite an apparently more neutral monetary statement in August, the latest quarterly Statement on Monetary Policy has shown a downwardly revised growth forecast. Devaluation of renminbi, in addition to deterioration in China's growth outlook should continue to weigh on Australia's economy. The RBA left the cash rate unchanged at 2% for a third consecutive month in August. The tweak of language in the accompanying statement lifted Aussie as the central bank noted that "Australian dollar is adjusting to the significant declines in key commodity prices", compared with previous months' comments that further depreciation was both "likely and necessary".. The overall tone of the statement sent a message that policymakers' monetary stance has been changed from dovish to neutral.
BOE's Super Thursday Shows Divergence in Monetary Stance Print E-mail
Special Reports | Written by | Aug 06 15 13:13 GMT
BOE voted 8-1 to leave the Bank rate unchanged at 0.5% and unanimously to leave the asset purchase program at 375B pound in August. Unlike previously, the central bank today released a 3-page policy statement, the meeting minutes and the quarterly inflation at the same time. Ian McCafferty was the only dissenter as he opted for a 25 bps increase in the policy rate. This is surprising as we, as well as the market in general, had anticipated at least 2 members voting for a rate hike. The minutes suggested that the near-term outlook for inflation is "muted" while the decline in energy prices would weigh on inflation at least until mid-2016. The information sent today was overall more dovish than previously expected. As such, British pound slipped on softer rate hike speculations.
RBA Suggests Australian Dollar Adjusting To Commodity Selloff Print E-mail
Special Reports | Written by | Aug 04 15 09:18 GMT
The RBA let the cash rate unchanged at 2% for a third consecutive month. Whist this decision had been widely anticipated, the adjustment in language in the accompanying statement has lifted Aussie. We note from the statement that the central bank was content with the current monetary policy has turned more positive on the labor market. The biggest change in the statement was comments on the exchange rate, on which the central bank acknowledged that 'the Australian dollar is adjusting to the significant declines in key commodity prices'. This was compared with previous months' repeating comments that further depreciation was both 'likely and necessary'. Overall, the tone appeared to have change from dovish to neutral, signaling that the cash rate might stay unchanged in the foreseeable future.
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.
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