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Action Insight: Special Reports

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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.
China The Main Reason For Depressed Aussie Print E-mail
Special Reports | Written by | May 13 16 01:51 GMT
Commodity currencies under our coverage (AUD, NZD and CAD) have dropped against US dollar in the first 2 weeks of May. Amongst the three, Aussie is the worst performer with its -3.47% decline since beginning of the month, following a -0.68% drop in April. Kiwi and loonie has dropped -2.17% and -2.27% so far this month, after rallying over the past 3 months. While a dovish turn of RBA has certainly dampened Aussie, we believe the key reason to its recent weakness is renewed concerns over China's growth outlook and the Chinese government's monetary stance.
BoE Steps Up Warning over Brexit, Noting Possibility of Recession and Rising Inflation Print E-mail
Special Reports | Written by | May 12 16 13:25 GMT
As expected, BOE voted unanimously in May to leave the Bank rate unchanged at 0.5% and asset purchases at 375b pound. Policymakers stepped up the warnings over Brexit, suggesting it might trigger technical recession, higher inflation and a sharp fall in sterling. Yet, Governor Mark Carney affirmed that there would be no shortage of liquidity for banks if Britain votes to leave the EU. Policymakers revised the GDP growth forecasts for 2017 and 2018. GBPUSD rose after the announcement
China Watch: Surplus Widened And FX Reserve Rose – Scenario That Should Prove Short-Lived Print E-mail
Special Reports | Written by | May 09 16 10:17 GMT
China's trade surplus widened to US$45.6B in April, up from US$29.9B a month ago. Both exports and imports fell last month but the sharp decline in the latter was the key reason for the jump in surplus. On a separate note, the country's FX reserves rose +US$7.09B to US$3.22 trillion in April. This second consecutive monthly uptick, following a US$10.3B increase in March, was mainly driven by USD weakness that had alleviated renminbi depreciation. Capital outflow continued in April. Yet, the pace has moderated when compared with earlier this year and 4Q15.
Brexit Referendum To Continue To Weigh On Sentiment Print E-mail
Special Reports | Written by | May 06 16 03:43 GMT
UK's Markit/CIPS PMIs for all the three major sectors came in weaker-than-expected in April. First, the manufacturing index plunged -1.5 points to 49.2, suggesting the Kingdom's manufacturing sector has fallen into the contractionary territory for the first time in 3 years. The services index fell to a 38-monht low of 52.3 while the construction PMI fell to its lowest level since June 2013. The disappointment indicates that firms have become more cautious over UK's business outlook due in face of both domestic and global concerns. We believe the key concern is the uncertainty of the Brexit referendum to be held on June 23. A decision to leave the EU is seen as negative to investment and business. Indeed, we note that the movement of EURGBP is inversely correlated to the lead of the 'remain' camp in rolling polls.
Moderation In China's Manufacturing Activities Cast Doubt Over Sustainability Of Growth Print E-mail
Special Reports | Written by | May 03 16 09:30 GMT
China's manufacturing activities in April, both official and Caixin/Markit figures showed. NBS' manufacturing PMI slipped -0.1 point to 50.1 in April whilst the one compiled by Caixin dropped -0.3 point to 49.4 in April. All key sub-indices showed moderations in both reports. We believe PBOC would need to maintain accommodative monetary stance in order to boost growth. However, the return of property price speculations should complicate the situation as easier measures might lead prices to accelerate more rapidly.
RBA Surprisingly Cut Cash Rate To 1.75% Print E-mail
Special Reports | Written by | May 03 16 07:41 GMT
RBA cut the cash rate, by -25 bps, to 1.75% in May, the first adjustment in a year, as core CPI fell short of expectations. The market had priced in 50/50 chance of easing at this meeting. Aussie reversed from the one-week high of 0.7719, sliding to as low as 0.7553 at one point after the announcement. The central bank refrained from hinting another further easing in coming month. The statement only noted economic growth and inflation should improve following the rate cut.
BOJ Failed To Take Loan Rates To Negative, Downgrading Growth And Inflation Forecasts Print E-mail
Special Reports | Written by | Apr 29 16 02:44 GMT
Contrary to market expectations of taking interest rates on loans to the negative territory, BOJ left its monetary policy unchanged. It would continue to increase the monetary base by around 80 trillion yen per year. Meanwhile, by a 7-2 majority vote, the central bank would continue to apply a negative interest rate of -0.1% to the Policy-Rate Balances in current accounts held by financial institutions at the central bank. On macroeconomic outlook, BOJ extended its ETA for reaching the 2% CPI price stability target, for a 6th time, to 'during FY17' from 'around H1 FY17'. It also lowered its real GDP and core CPI forecasts. USDJPY’s gains accumulated ahead of the meeting were rapidly erased while shares also retreated as the central bank failed to add more stimulus this month.
RBNZ Keeps Its Powder Dry In April, Less Dovish Though Easing Bias Remains Print E-mail
Special Reports | Written by | Apr 28 16 03:55 GMT
Following a rate cut in March, the RBNZ left the policy rate unchanged at 2.25% this month. The accompanying appears less dovish than the previous meeting as policymakers again noted the housing price pressure in Auckland and they decided to drop the phrase that headline inflation will 'take longer to reach the target range'. However, the easing bias remains with the central bank noting that 'further policy easing may be required to ensure that future average inflation settles near the middle of the target range. We will continue to watch closely the emerging flow of economic data'. The possible timing for another rate cut might be in June or August, given both are full MPS meetings
Fed Removes Language On Risks, June Hike Remains Possible But Uncertainty Increases Print E-mail
Special Reports | Written by | Apr 28 16 03:41 GMT
The Fed again left the monetary policy unchanged in April with Kansas City Fed president Esther George the only members favoring a rate hike), Policymakers downgraded the assessment of economic activities but added the moderation in pace should be transitory. While acknowledging improvement in the labor market, the central bank saw little evidence that inflation and inflation expectations were firming. The 'risk' language was removed, while discussions are that 'balance of risk' was not found, in the April statement. It was, however, replaced by the pledge that the Fed would continue to 'closely monitor inflation indicators and global economic and financial developments'. We see the Fed is not in a hurry to increase interest rate further. While there remains chance for a hike in June, policymakers refrain from indicating a high chance of it. US dollar jumped immediately after the release of the statement. Gains were, however, pared quickly.
Draghi Affirms Positive Impacts of Stimuli, Defends Independence of ECB as He Faces Criticism Print E-mail
Special Reports | Written by | Apr 21 16 14:18 GMT
As expected, ECB left the main refi rate unchanged at 0%, the deposit at -0.4% and the asset purchase program at 80B euro/month. The central bank noted that it would begin buying corporate bonds in June. President Mario Draghi at the press conference suggested that interest rates would stay at present or lower levels for an extended period of time, even after QE has ended. He continued to warn that global economic outlook remains uncertainty and inflation might turn negative in coming months "before picking up in the second half of 2016". He pledged that the central bank would monitor the developments closely and act accordingly "if warranted". The central bank signals that the door has remained open for further easing.
RBA Reiterated Concerns Over Aussie Strength At April Minutes Print E-mail
Special Reports | Written by | Apr 19 16 03:26 GMT
The RBA minutes for the April meeting contain little new information. Instead, policymakers reiterated their growing concerns over the strength in Australian dollar which had been trading at the highest level since May 2015 in early April. The central bank attributed the appreciation to the rise in commodity prices and Fed’s more dovish monetary stance. The RBA kept the cash rate at 2% for a 10th consecutive meeting in April. Yet, it pledged to ease further if needed, in particular if inflation stays persistently at low levels.
China FX Reserve Rose For The First Time Since Last October Print E-mail
Special Reports | Written by | Apr 08 16 08:02 GMT
China's FX reserves increased +US$10.3B to US$3.21 trillion in March. The first rise in 5 months was mainly driven by positive valuation effects, less government intervention on renminbi and non FDI capital controls. So as to limit valuation changes caused by currency volatility, the government also announced the figure denominated in IMF's Special Drawing Rights (SDR). The abovementioned reserve amount of US$3.21 trillion is equivalent to 2.28 trillion SDR.
FOMC Minutes Indicates April Hike Highly Unlikely. Members Not As Dovish As Market Perceives Print E-mail
Special Reports | Written by | Apr 07 16 06:03 GMT
The FOMC minutes indicated that the March meeting was not as dovish as it was seen in the statement. The minutes unveiled the divergence in views of Fed's tightening schedule. While it appears that the majority of members does not see a rate hike anytime soon, some of them were inclined to tighten again in as soon as April. These less dovish members appeared to be less concerned about the impact of downside risks from the global growth on the US than Fed Chair Janet Yellen. Policymakers remained confident over US growth outlook. Policymakers, not in unanimity, saw increasing downside risks to global economic and financial developments. As suggested in the updated dot plot released in accompaniment with the March policy statement, the Fed currently expects 2 rate hikes in 2016, halved from previous its estimate.
RBA Keeps Cash Rate at 2%, Warns over Strong Exchange Rate Print E-mail
Special Reports | Written by | Apr 05 16 11:30 GMT
RBA left the cash rate unchanged at 2% in April. The decision had been widely anticipated. Yet, our focus is on policymakers' stance on recent strength in Australian dollar which has risen more than +11% against US dollar since January this year. The key reasons are USD weakness amidst a more dovish Fed, a move to negative rates in some economies and a jump in iron ore prices. RBA noted indicated in previous meetings that a 10% appreciation in Aussie would reduce GDP growth by 0.5-1% percentage point over 2 years, and trim the year-end inflation rate by 0.25-0.5% over each of the following 2 years. At the meeting, the central bank warned that persistent strength in its currency "could complicate the adjustment under way in the economy".
BOE Voted Unanimously To Keep Rates Unchanged, Concerned Over Brexit Referendum Print E-mail
Special Reports | Written by | Mar 18 16 08:24 GMT
BOE again voted unanimously to leave to Bank rate unchanged at 0.5% and the asset purchase program at 375B pound. While acknowledging 'solid' domestic demand growth, policymakers were concerned about the uncertainty brought forward by Brexit referendum in June. Members remained diverged regarding the 'balance of risks to inflation relative to the central projection presented in the February Inflation Report'. As such, it is concluded that 'the MPC’s best collective judgment is that it is more likely than not that Bank Rate will need to increase over the forecast period to ensure inflation returns to the target in a sustainable fashion'.
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