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Action Insight: Special Reports

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Brexit Leads UK and the World to Uncharted Territory Print E-mail
Special Reports | Written by | Jun 24 16 12:14 GMT
To the surprise of the whole world, Britain decides to LEAVE the EU with 51.9-48.1 vote and turnout of 72.2%. Shortly after the result was confirmed, Prime Minister David Cameron announced his plan to step down by October. As he delivered his speech outside 10 Downing Street, Cameron noted that "the British people have made a very clear decision to take a different path and as such I think the country requires fresh leadership to take it in this direction. I will do everything I can as Prime Minister to steady the ship over the coming weeks and months but I do not think it would be right for me to try to be the captain that steers our country to its next destination".
Contingency Plans For 'Leave' Outcome Point To More Accommodate Measures Print E-mail
Special Reports | Written by | Jun 23 16 10:04 GMT
Central bank chiefs have over the past weeks stepped up warnings over the Brexit risks. While the Fed's decision keep interest rates unchanged in June was mainly due to disappointing job data, Chair Janet Yellen noted at the press conference that the uncertainty of EU referendum on June 23 is a critical factor affecting the rate decision. At her testimony over the past 2 days, Yellen repeated that a vote to 'leave' the EU would 'have significant economic repercussions'. Other central banks also expressed their concerns over the economic development after Brexit. In our opinion, a decision to 'leave' would further delay Fed's rate hike schedule and trigger ECB and BOJ to add more stimulus. It is rather difficult to predict BOE's action, but a move to cut rates appears higher than to increase.
If UK Leaves EU,... Print E-mail
Special Reports | Written by | Jun 21 16 15:44 GMT
With only a few days to go before the EU referendum, available polls suggest it would be a neck-and-neck race. Financial Times' poll of polls shows that, as of June 21, supports for "remain" and "leave" both stood at 44%. A huge 12% of undecided voters would be the key to the final outcome. The poll of polls by revealed 50% for both "remain" and "leave" camps. Since whether to "remain" or to "leave" the EU would be a very close call, we believe the market has at most priced in 50% chance of "leave". As such, a "leave" on June 23 would indeed cause turbulence in the financial markets. Apart from comments from politicians and events by campaigns of both sides, the TV programmes that might also influence voting intentions include BBC live event today (June 21) at Wembley Arena where representatives of each side of the debate will face questions from the public and Channel 4's final TV debate with various campaigners from the "remain" and "leave" camps on June 22.
RBA More Upbeat Over Growth And Employment, Weak Inflation Driver For Another Rate Cut Print E-mail
Special Reports | Written by | Jun 21 16 07:22 GMT
The RBA minutes for the June meeting unveiled that policymakers were content over Australia’s growth and employment situation, although they remained cautious over the persistently low inflation. While acknowledging the recent increase in house prices, particularly in Sydney and Melbourne, the central bank did not view it as a barrier to further monetary easing. It also reiterated the comments that appreciation of Australian dollar could 'complicate the adjustment of the economy to the lower terms of trade'. Meanwhile, the RBA admitted possible volatility risks driven by Brexit referendum. The RBA was neutral in the monetary policy outlook but left the door open for a rate cut in August.
BOE Steps Up Warnings of Post-Brexit Adversity Print E-mail
Special Reports | Written by | Jun 16 16 15:06 GMT
Following Fed, BOJ and SNB, BOE announced to leave the policy rate unchanged at 0.5% in June. It also maintained the size of the Asset Purchase program at 375B pound. What interests the market the most is the central bank's latest assessment on the impacts of Brexit, especially the rising lead of the "leave" camp in recent polls. BOE indicated that the outcome of the referendum next week would be the biggest imminent risks facing financial markets in UK, as well as in the world. The pound is expected to fall "sharply" if UK decides to leave EU. EURGBP extended strength to a 2-month high of 0.7994 before retreat.
SNB Keeps Powder Dry Despite Franc Strength, Lifts Inflation Forecasts Print E-mail
Special Reports | Written by | Jun 16 16 10:55 GMT
SNB left its deposit rate unchanged at -0.75%, and the target range for 3-month Libor target range stable at between -0.25% and -1.25%, in June. Meanwhile, it kept the GDP growth forecasts unchanged while lifted the inflation outlook. President Thomas Jordan warned of the negative effects of recent Brexit uncertainty, indicating that the issue “has already caused volatility on the financial markets to rise… Uncertainty emanating from political events could escalate, hampering economic development”. Recent strength in Swiss franc should extend for a while should Britons decide to leave the EU next week, forcing SNB to intervene in the currency market.
Fed Left Policy Rate Unchanged, More Members Expect Fewer Hikes in 2016 Print E-mail
Special Reports | Written by | Jun 16 16 03:40 GMT
As expected, the Fed left the Fed funds rate target unchanged at 0.25-0.5% in June. However, the accompanying statement and the staff projections turned out to be more dovish than expected. First, the members voted 10-0 to leave the Fed funds rate unchanged with Esther George joining the camp after supporting rate hikes in both March and April. The median member still calls for 2rate hikes this year, whilst 6 members expect only one rate hike this year. Meanwhile, the median Fed Funds rate expectations for end- 2017 and 2018, as well as the long-run Fed funds rate, have been revised lower. Chair Janet Yellen noted the uncertainty of Brexit referendum on June 23 is a critical factor affecting the rate decision. She still opened the door for a rate hike in July.
China's Growth in Fixed Asset Investment Showed Sharp Deceleration in May Print E-mail
Special Reports | Written by | Jun 14 16 15:29 GMT
China's macroeconomic data in May added further to growth concerns. While expansion in industrial production and retail sales steadied, that for fixed asset investment was sharply lower. Industrial production grew +6% y/y in May, in line with expectations and April's reading, while retail sales expanded +10% y/y, compared with consensus and April's +10.1% growth. The disappointment mainly came from urban fixed asset investment (FAI)as growth of which decelerated significantly to +9.6% y/y in the first 5 months of the year, from +10.5% in the first 4 months of year. The market had only anticipated a mild slowdown to +10.4%. This also marks the slowest pace since 2000. Note that China has notorious record of making up numbers in its trade figures, we suggest to macroeconomic data with caution.
May Statistics In China Fail To Alleviate Slowdown Concerns Print E-mail
Special Reports | Written by | Jun 10 16 11:13 GMT
China's data released throughout the week anchored concerns over the country's growth outlook. FX reserve fell –US$27.9B to US$3.19 trillion, the lowest level since December 2011, in May. Strong USD during the period exacerbated the problem of capital outflows. It is estimated that US$32B of capital fled China in May, accelerating from 25B a month ago. While the decline in FX reserves in May was tamer than those seen during the period of November 2015- January 2016, the net balance of payment outflows continued. With trade surplus widening over +US$5B to US$49.98B in May, capital obviously continued to flee the country. We expect the situation to continue. Onshore renminbi (CNY) declined more than -1.6% against USD in May (the biggest fall since August 2015), suggesting the government is allowing capital outflow to be reflected in renminbi depreciation, instead of merely decline in FX reserve. PBOC also reported a +3.5B increase in reserve in SDR terms from April's level.
RBNZ Keeps Powder Dry, Kiwi Jumps To Highest In Over A Year Print E-mail
Special Reports | Written by | Jun 09 16 04:51 GMT
RBNZ kept the OCR unchanged at 2.25% in June and sent a less dovish message in the accompanying statement. While maintaining easing bias, policymakers appeared to have turned more positive on global economy and financial markets. They have also revised higher domestic growth and inflation forecasts in the near-term, while revising lower them in the long-term. The members indicated that inflation remains low but expectations are stabilizing. They were concerned over housing price inflation. RBNZ was less concerned about the exchange rate although suggesting that the kiwi remained “higher than appropriate”. Carrying forward the strong tone over the past week, NZDUSD extends the rally to a 13-month high of 0.713 after the announcement.
Brexit Referendum: Two More Weeks To Go Print E-mail
Special Reports | Written by | Jun 08 16 10:29 GMT
Selloff of EURCHF gathered momentum after a report showing significant increase in SNB’s FX reserve. FX reserves rose to a record higher of CHF602.1B in May, from CHF587.9B a month ago, as the central bank likely acted to prevent Swiss franc from appreciating too rapidly. Recent strength in Swiss franc is also demonstrated in USDCHF which has fallen more than -3% from the 2Q16 peak of 0.9955 made on May 30. Safe haven characteristic of the franc is especially appealing as uncertainty increases over Brexit referendum. We expect referendum to continue to dominate the short-term trend for both USDCHF and EURCHF. For sure, renewed dovish sentiment following the May US employment report has also helped pressure the former.
RBA Left Cash Rate Unchanged, Removed Language of Further Easing Print E-mail
Special Reports | Written by | Jun 07 16 06:07 GMT
RBA left the cash rate unchanged at 1.75% in June, following a -25 bps cut a month ago. Policymakers acknowledged continued growth in domestic economy and expansion in exports. Yet, they remained concerned over the persistently low inflation. The central bank refrained from giving hints of the timing for the next rate cut, other than keeping the door open for further easing.
ECB Announces To Begin Corporate Bond Buying Next Week, Downside Risks Diminished As Stimulus Effective Print E-mail
Special Reports | Written by | Jun 03 16 05:42 GMT
As widely anticipated, ECB left the monetary policy unchanged in June and remained confident over the effectiveness of the measures implemented and to be implemented. President Mario Draghi announced at the meeting that the corporate sector purchase program (CSPP) would begin on June 8 while the first TLTRO2 auction will be launched on June 23. The staff adjusted only modestly the economic projections. Draghi sees downside risks to growth diminished as a result of the policy measures adopted. He reiterated that ECB is ready to add more stimuli to the market when needed. He also added that, besides monetary policies, other measures at the country and the European level are needed to boost growth.
Latest PMIs Add Concerns over China's Growth Outlook Print E-mail
Special Reports | Written by | Jun 01 16 05:37 GMT
The latest PMI data appear to justify renewed concerns over China's growth slowdown. According to the National Bureau of Statistics (NBS), China's manufacturing PMI stayed unchanged at 50.1 last month. While a reading above 50 signals expansion, it marks the second consecutive month of decline. Meanwhile, the non-manufacturing (services) PM dipped -0.4 point to 53.1 in May. Services activities now contribute to about half of China GDP and are essential for the transformation to consumer-driven economic growth. Indeed, the government has announced to open up certain services sectors, such as finance, education and healthcare, for overseas investment. Moderation in services sector activities should have sent an alarm to the government.
GBP Prone To Trend Lower In Medium-Term After Brexit Referendum Print E-mail
Special Reports | Written by | May 30 16 10:01 GMT
The greenback has rallied against most currencies since the more-hawkish-than-expected April FOMC minutes, with the exception of the pound (GBP). While the US dollar index (DXY) has gained +0.2% since the minutes was released (the gain would be higher if GPB is excluded in the index), USD has dropped -0.42% against GBP during the period. Bullishness in GBP has been driven by a recent Brexit poll (by Telegraph) showing that d the previously perceived 'leave' voters had moved towards 'remain. As the recent trend signals that the lead of 'remain' over 'leave' might continue to widen, the pound should stay supported in coming months and remain strong for a while if the Britons decide to remain in the EU on June 23. Yet, we stay cautious over the currency's outlook. Risk of the pound is skewed to the downside in the medium-term with a slowdown in housing market and fiscal tightening dragging on growth. Meanwhile, renewed slowdown in the China should weigh on emerging market reserves in the UK.
BOC Keeps Powder Dry, Negative Impacts Of Wildfire Likely Temporary, More Optimistic Over US Growth Print E-mail
Special Reports | Written by | May 26 16 01:55 GMT
BOC left its overnight night rate unchanged at 0.5% in May. Policymakers discussed about the impacts of wildfires in Alberta, expecting the event to drag the second quarter growth to negative but the economic impacts should be transitory. The central bank has turned more optimistic over the US growth outlook, forecasting 'a return to solid growth in 2016' in the world's largest economy and its biggest trading partner. We expect BOC to keep its powder dry for the rest of the year.
PBOC Seeks Tighter Control Over Renminbi As China Seeks Stability Print E-mail
Special Reports | Written by | May 25 16 10:02 GMT
PBOC fixed USDCNY at 6.5693, the highest level since 2011, on May 25. Indeed, resumption in USD strength has been weighing on renminbi and other emerging market currencies since the last month. The pressure has intensified since speculations of Fed funds rate hike heightened following a more hawkish than expected FOMC minutes. Problems of capital outflow in China deteriorated since late last year, triggering the government to sell foreign currencies in support of renminbi. Weakness in USD over the past few months has helped alleviate the concerns. However, resumption in USD strength and weak Chinese macroeconomic data failing to build confidence over the country’s growth prospect might fuel expectations of further renminbi depreciation, we suspect capital outflow would resume. Going forward, the government would tend to set the renminbi rate in a manner that favors its own economic and financial objectives, such as maintaining stable growth and reducing capital outflow, while currency liberalization should take a backseat. As such, PBOC’s reaction to USD movement would be asymmetric.
ECB Worries About Weak Inflation Expectations, Defends Independence Print E-mail
Special Reports | Written by | May 20 16 03:45 GMT
ECB minutes for the April 21 meeting failed to surprise. The members were disappointed that inflation expectations had remained low despite stabilization of the commodity markets. The economy expanded at 'a moderate, but steady, pace' during the intermeeting period. However, the central bank reiterated that 'risks to the growth outlook were still tilted to the downside, while having moderated somewhat'. Regarding recent criticisms by some Eurozone governments over ECB's policy decisions, policymakers generally agreed that 'there was a need to counter the perception that monetary policy could no longer contribute to a return of inflation' and they believed it is 'important to reaffirm collectively the independence of the ECB in the pursuit of its mandate'. The central bank reaffirmed the focus now on is on implementing latest measures and purchases of corporate bonds would likely begin in June.
FOMC Minutes Spur Hopes Of June Rate Hike Print E-mail
Special Reports | Written by | May 19 16 03:55 GMT
The modestly-hawkish FOMC minutes for the April 28 meeting lifted hopes of June rate hike. Policymakers generally judged that it might be justified to increase interest rates in June if economic data suggest growth were picking up in 2Q16, job market continued to improve and inflation were making progress to reach the +2% target, though some were worried that the data by then might not be sufficient for decision making. Most members also viewed that the slowdown in growth of consumer spending in the first quarter would be temporary, probably due to measurement problems and other transitory factors. As the data (e.g. retail sales, CPI, IP growth) released since the meeting has been consistent with strong growth in the second quarter, we see high risks for the move by the Fed in June/ July.
RBA Minutes Unveiled Members Had Considered Putting On Hold In May Print E-mail
Special Reports | Written by | May 17 16 04:54 GMT
The RBA in its minutes for the May meeting explained in details the rationale for the surprising rate cut earlier this month. Despite no material change in the economic outlook or the employment situation, the inflation outlook appeared to have weakened. Such concern was reflected in the central bank's downward revisions on inflation (underlying inflation was expected to remain around 1-2% this year and to pick up to 1.5-2.5% by mid-2018) and the key reason for the -25 bps rate cut. Policymakers noted that they had taken into account the housing market situation. They believed that supervisory measures adopted so far have been effective in curbing the risks of rate cut and excessive housing price appreciation.
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