Sat, May 26, 2018 @ 18:19 GMT
Policy Divergence was once a hot topic back in 2015 through early 2017, when the FOMC began to increase the Fed funds rate, while other major central banks maintained extra accommodative monetary polices as they struggled to boost the...
Italy’s two populist parties – the anti-establishment Five Star Movement and the far-right League- have agreed on a prime minister candidate, clearing another hurdle to forming a new coalition government. Over the weekend, members of both parties approved the...
Failure to rescue currency slump despite aggressive rate hike has led Argentina to seek IMF bailout. Last week, it was reported by the government has asked for a flexible credit line worth $30B from the world lender. According to...
Donald Trump confirmed that the US would withdraw from the Iran nuclear deal, an agreement reached in 2015 between Iran, the P5+1 (5 UNSC permanent members including US, France, Russia, UK, China + Germany) and the European Union. New...
China recorded a trade surplus of US$ 28.8B in April, beating consensus of US$ 27.5B. In March, China reported a deficit of US$ 5B due to seasonal factor. Compared with the same period last year, trade surplus narrowed by...
British pound remains under pressure after Friday’s selloff. GBPUSD slumped almost -1% on Friday, resulting in a second consecutive weekly decline of the pair, as weakness in first quarter GDP growth was accompanied with BOE Governor Mark Carney’s dovish...
EURCHF remains in consolidation after briefly breaching 1.2 last Friday. We see policy divergence, US sanctions against Russia and the upcoming referendum on SNB’s power are key reasons for the recent weakness in Swiss franc. Despite the symbolic meaning...
The two most astonishing features in the financial market over the past week were soaring US Treasury yields and crude oil prices. After making a fresh 4-year high last Friday, the 10-year yield extended gains and eventually broke above...
The Monetary Authority of Singapore* (MAS) last Friday announced to increase the slope of the Singaporean dollar nominal effective exchange rate (SGD NEER) policy band “slightly”, the first adjustment since the policy tool was reduced to 0% in April...
In IMF’s latest world FX reserve report*, central bank’s/ reserve managers’ demand for US dollar remained intact in 4Q17. This has not only reinforced the greenback’s dominant status as the world’s reserve currency, but also signaled other currencies still...
US-China trade friction aggravated as China on April 4 announced the second round of retaliation, immediately after US revelation of a list of about US$ 50B worth of made-in-China products that are subject to 25% tariffs. The first round...
USDHKD has continued flirting slightly below 7.85, the weak end of its trading band. Since late-February, the market has been speculating about what and when the Hong Kong Monetary authority HKMA, the de facto central bank of Hong Kong,...
The latest testimonies of both the incoming and outgoing Fed chairs suggest that the FOMC's approach would be more the less the same after February next year. At his confirmation hearing before the Senate, Jerome Powell affirmed that...
Although the selloff the euro as a result of a breakdown of Germany's coalition talks appeared short-lived, political instability in the country and the EU would remain in play for some time. We see four possibilities are present in the aftermath of FDP's walkout from the 4-week exploratory talks: 1 New election, 2. Grand coalition (a CDU/CSU+SPD Government), 3. Restart of the Jamaica talks (CDU/CSU + FDP+ Greens) or 4. Formation of a minority government by CDU/CSU with either the Greens or FDP. It appears that none of the above options is easier to be achieved as each has its own limitations and constraints. This report would analyze each of the four scenarios. Yet, assessing the likelihood of the scenarios at this stage appears premature as the developments remain fluid.
The House of Representatives passed its version of tax reform bill with a 227-205 vote. The outcome had been widely anticipated as Republicans control 240 out of 435 seats there. Despite the passage of the bill, there were 13 Republicans voted against it due to the dissatisfaction with the proposal to eliminate the deduction for state and local income taxes, although the deduction for property tax up to US$ 10 000 is preserved. Dissenters were mainly from high-tax states with 5 GOPs from New York, 4 from New Jersey, 3 from California and 1 from North Carolina voting against the bill. The House is presumably the easier hurdle for the tax reform bill due to the larger Republican majority.
Once again securing a super majority (two-third of seats) in the snap election on October 22, Japan's LDP/ Komeito coalition would continue to lead the lower house, possibly until 2021. The landslide victory indicates that PM Shinzo Abe would likely be re-elected for a third presidential term in the LDP next year, allowing him to push forward his political and economic policies with a stronger mandate. There are several reasons for the rally in Nikkei and USDJPY after the election outcome. Just like the previous elections we have seen before, the stock market and currency of a country usually weaken amidst of political uncertainty. Re-election of the ruling party has removed of uncertainty at least in the near-term. This bodes well for the stock market and currency. Unlike other currencies which tend to rise on lessened uncertainty, Japanese yen fell on diminished demand for safe-haven asset. Another reason for the rise in Japanese stock market and yen was expectations of lengthy monetary easing by BOJ. Meanwhile, widening US-Japan yield spread would also continue to support USDJPY in the medium term.
With no single party being able to secure over half of the seats in the parliament in last month's election, the right-wing, populist NZ First party has become a kingmaker. Its leader Winston Peters has just announced that his party would form a government with the Labour Party. Kiwi's sell off after the announcement as the outcome has not been quite priced in. NZ First had cooperated with both National and Labour previously (National/ NZ First from 1996 to 1998, and Labour/ NZ First from 2005 to 2008).
British pound's post-BOE rally has more than evaporated over the past two weeks. Political uncertainties and the lack of progress in Brexit negotiations are the key reasons driving sterling lower. Despite mounting pressure on PM Theresa May to step down, we believe it would be hard to materialize as there lacks charismatic leaders within the Conservative Party and the move might trigger a snap election and a Labor government. Progress of Brexit talks has remained slow. The next round of talk in Phase I would begin this week, amidst EU Parliament's overwhelming vote that previous talks has not brought sufficient progress. EU member states are due to vote next week to decide whether the talk can progress to the next phase. It is getting likely that BOE would increase the Bank rate by +25 bps in November. However, we do not consider this as the beginning of a tightening cycle as UK's macroeconomic developments remains fragile.
Volatility in Japanese financial markets is set to intensify as the snap election for the parliament (Lower House), scheduled on October 22, approaches. Our base case is that PM Shinzo Abe's LDP would remain the biggest party. He would continue to be the leader of the LDP/Komeito coalition in the new term. However, the rapid rise of the new party Kibo no To (Party of Hope), led by Tokyo Governor Yuriko Koike, might result in a decrease in number of seats for LDP. This, together with the decline in Abe's approval rating, has created much uncertainty in the upcoming election.
Despite government's violent intervention, Catalonia's referendum took place and resulted in an overwhelmingly "yes" to seceding the region from the rest of Spain. European financial markets' reactions are rather negative to the outcome. Euro's selloff accelerated in the European morning with EURUSD falling -0.7% at the time of writing this report. Spanish equities fell with the benchmark IBEX index losing over -1% in the morning session. Treasuries fell, sending yields higher. The 10-year Spanish government bond yields soared to a 2.5-month high of 1.68%. Spread between Spanish-German 10 yields rose to the highest in 3 weeks.