In a surprising move, BOC increased the policy rate by +25 bps to 1% in September, following a rate hike in July. Policymakers cited the better-than-expected economic developments as a key reason for the removal of stimuli from the market. However, they remained cautious over a number of issues including excess capacity, subdued inflation, geopolitical risks and the strength in Canadian dollar.
The recovery in euro since late-May gathered momentum last week after ECB Chief Economist and executive board member Peter Praet signaled the central bank would discuss QE tapering at this week’s meeting. We are not surprised by this as...
RBA minutes for the July meeting suggested that policymakers acknowledged the economic growth and the improvement in the labor market recently. The members also discussed the appropriate neutral rate which they believed should be at +3.5%, well above the current cash rate of 1.5%. This heightened market expectations of a potential rate hike in the near-term. As such, Aussie jumped to a 2-year high after the release of the minutes.
The BOE voted unanimously to leave the Bank rate unchanged at 0.5% in December, following a historic rate hike in the prior month. Policymakers also decided to leave the asset purchase program unchanged at 435B pound. Overshooting of inflation remains a key concern with the central bank putting its blame on British pound's weakness. Policymakers noted that recent macroeconomic data have been "mixed" and raised the concern that GDP growth might slow in 4Q17. The central bank also acknowledged the progress of Brexit negotiations, suggesting that it has helped support the pound. We expect the BOE would keep its powder dry at least for the first half of next year, unless abrupt changes in the growth and inflation developments.
Since the BOC meeting in May, at which the policymakers removed the “cautious” rhetoric, the market has been raising its bet on a July rate hike. As of today, the market has priced in over 90% chance of a...
SNB's FX reserve slipped to 738.17B franc, from a record high of 741.96B franc (revised from previous estimate of 741.32B franc), in November. The drop is in contrast with consensus of an increase to 745B franc and marks the first drop since June this year. Meanwhile, the sight deposit fell to 576.78B franc in the week ended December 1. Subsequent decline from the August peak has sent sight deposit to the lowest level since June 2017. The movements of both FX reserve and sight deposit have suggested that the SNB is not in a hurry to intervene with the recent weakness in Swiss franc. Separately, the country's unemployment rate stayed unchanged at 3% (seasonally adjusted) in November, compared with expectations of a rise to 3.1%. For the quarterly SNB meeting scheduled on December 14, we expect policymakers to maintain the status quo, i.e. keeping 3-month LIBOR target range unchanged, at between -1.25% and -0.25%, maintaining the interest rate on sight deposits with the SNB at -0.75% and reaffirming that the central bank is committed to intervene in the FX market as necessary. We believe the domestic economic developments since the September meeting have shown gradual improvements, leaving policymakers more room to wait and see.
As expected, the RBNZ left the OCR unchanged at 1.75%. Governor Wheeler reiterated that the monetary policy would remain accommodative for some time. The staff projection continued to forecast the first rate hike to come in 2H19. They also revised lower the short term inflation outlook and intensified the warning that a lower currency is needed for growth. NZDUSD jumped to a 3-day high of 0.7371 after the announcement, but gains were erased afterwards.
BOE left the Bank rate unchanged at 0.25% and the QE program at 435B pound. While this had been widely anticipated, BOE's downgrade of GDP growth outlook was disappointing. Policymakers also raised its inflation forecast for this year, warning that rising inflation begins to hurt consumers, but lowered the forecasts for 2018 and 2019. Expectations of a "smooth" Brexit led members to believe that interest rate may need to go up around the time the UK leaves the EU in 2019.
As we expected, BOC left the policy rate unchanged at 1.75% in yesterday. Policymakers admitted that the decline in oil price has “material” impact on the economy. Yet, they viewed the impact as transitory. Reflecting the view on economy...
ECB's July minutes voiced concerns over euro's strength. This is particularly important as the central bank is about to discuss tapering of the asset purchase program. Yet, the members generally agreed that "there was presently a continuing need for steady-handed and persistent monetary policy". The single currency instantly dropped to a 3-week low of 1.1661 against USD, 2-day low of 0.9061 against GBP and 4-day low of 1.1302 against CHF, before recovery.
BOE sent a hawkish message at the September meeting, noting that the majority of the members agreed that some withdrawal of stimulus should be appropriate in coming months. The key reason for the upcoming tightening is strong inflation which the central bank expects to rise above +3% in October. The market interpreted this as a signal that the historically low interest rate would be raised soon. Sterling rallied to a one-year high against the US dollar and a two-month high against the euro after the announcement. The market has now priced in over 54% chance of a rate hike in December. On the monetary policy this month, the BOE voted 7-2 to leave the Bank rate unchanged at 0.25% and unanimously to keep the asset purchase at 435B pound.
As widely anticipated, RBA left the cash rate unchanged at 1.5% in November. As we await Friday' Statement of Monetary Policy, policymakers revealed at today' statement that the macroeconomic guidance has stayed largely unchanged. In short, policymakers remained upbeat about the growth outlook, although they expressed concerns over household spending and soft inflation. Despite recent weakness in the Australian dollar, RBA reiterated the warning that higher exchange rate would lead to slower growth and inflation. Given the overall unchanged tone of the central bank, we retain the view that RBA would keep the policy rate unchanged at least until 1H18.
The price actions in US dollar and Treasuries suggested that the market views the July FOMC minutes as a dovish one. The minutes revealed that policymakers were concerned that US inflation might stay below +2% longer than previously anticipated. On the other hand, it appears that an announcement on balance sheet policy is imminent. The market pricing of a rate hike in December ranges from 35-45%. It only expects less than two times of rate hike through end-2018, compared with four projected in the Fed’s dot plot. US dollar initially climbed higher upon release of the statement. Gains were, however, erased shortly with the DXY index ending the day -0.33% lower. Treasury prices strengthened, sending 2-year yields -3 points lower to 1.33% and 10-year yields -5 points to 2.23%.
Despite initial rally following the announcement of a Brexit transition deal, British pound has retraced much of its gains. Both UK and EU officials have hailed the agreement. While UK's Brexit negotiator Davis David noted that the deal contains...
The August FOMC statement contained few changes, following quite remarkable amendments in the June one. The only change came from the upgrade in the assessment of the economic developments. Interestingly, Chair Powell’s “for now” qualifier on the rate hike...
FOMC raised the fed funds target range, by +25 bps, to 0.75%-1.00% with 9-1 vote. Minneapolis Fed President Neel Kashkari dissented as he favored leaving the monetary policy unchanged. The Summary of Projections (SEP) shows virtually the same macroeconomic outlook. Moreover, the median dot plot maintained three rate hikes this year and in 2018. Chair Janet Yellen noted that that the projections have not included potential fiscal stimulus promised by President Donald Trump. She also noted that the Committee discussed on balance sheet policy but no conclusion was reached. The market was disappointed, reflected in the decline in US dollar and Treasury yields, as they had anticipated more hawkish statement and some upward adjustments in economic forecasts.
RBA left the cash rate unchanged at 1.5% for a 21st meeting in July. The outcome had been widely anticipated. Indeed, the market has expected no interest rate adjustment at least until late 2019. As a result, market reaction...
The greenback slumped as the FOMC minutes for the November meeting revealed that 'several' members were concerned that weak inflation would be persistent, rather than temporary. They highlighted the worries about a 'a diminished responsiveness of inflation to resource utilization'. Another important message suggested in the minutes is that a December rate hike is almost a done deal with 'many' members judging that it is 'warranted in the near term' if the macroeconomic data remain steady. Such opinion has outweighed the thought of 'a few 'members' that a rate hike should be delayed. We view the USD selloff might have been over-reacted. Note that the (core) PCE, the Fed’s preferred inflation barometer, has improved, while the October CPI, released after the November meeting, also picked up. We believe the majority of the FOMC still retain the view that weak inflation is transitory.
As widely anticipated, BOJ again voted 8-1 to leave the monetary policies unchanged in October. The targets for short- and long-term interest rates stay at -0.1% and around 0%, respectively while the guideline for JGB purchases remains at an annual pace of about 80 trillion yen. The central bank has turned more upbeat on the economic outlook, especially on Capex and consumption. Goushi Kataoka was again the lone dissent as he supported bond purchases so as to facilitate the decline of 10-year (or over) bond yields. Governor Kuroda's speech at the press conference has not tilted towards less easing/ policy normalization in the near-term
Lacking other exciting news, the market was thrilled by the media report that US President Donald Trump was impressed by Stanford University Economic John Taylor at the Fed Chair candidate interview. Bets for Taylor to be the next Fed chair increased, making him one of the top three candidates alongside Jerome Powell and Kevin Warsh. Market reaction to the rise of Taylor was USD strength and an upward shift in the UST yield curve, hinging on hopes that this creator of the Taylor rule would accelerate the pace of rate hike if he has become the Fed' chief. We believe such expectation is a bit too far-fetched.