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Tuesday, 28 July 2015

28 July 2015, 08:38


David Sumual, Economist at Bank BCA, assess the weakening rupiah still follows the trend of the strengthening US dollar. Moreover, the market wait and see a lot of chasing the dollar ahead of the FOMC Statement by the Fed on Thursday (30/7) later.

"Currently, investors still wait and see ahead of FOMC Statement. Moreover, US economic data last week, as the data of employment satisfactory although slightly disappointing home sales data, "said David.

In addition, the data Markit Flash China Manufacturing PMI which were below expectations, namely 48.2 worse than the previous period at 49.4 to negative sentiment for the rupiah.

"Data Markit Flash China Manufacturing PMI is the lowest throughout the last year, making the currencies of commodity-exporting countries is becoming weaker. Indonesia exports nearly 60% of the commodity, "continued David.

David guessed dollars on Tuesday (28/7) can be strengthened is limited because there is the release of data from the Investment Coordinating Board (BKPM) on investment data Indonesia improved at the level of 16% compared to the previous period. The investment data could be a positive sentiment for the rupiah, although David assess the trend is still less than expected results FOMC Statement and Chinese manufacturing data releases unsatisfactory.

Therefore, the prediction of David dollars on Tuesday (28/7) will move positively inclined stable in the range of Rp13.400.

The decline in the consumer issuers rank slipped from second place to third position as the highest-cap issuers.

28 July 2015, 08:31
  • GBP/JPY has recovered after making a low of 190.99 and is currently trading at 192.45.  Short term trend is bullish as long as support 192 holds.
  • On the higher side minor resistance is around 193 ( 200 day HMA)  and nay break above will extend gains till 193.66/194 in short term.
  • The pair's potential loss is unlimited if it breaks below 192 and below 192 it will target 191.50/190.99.
  • Bullish invalidation only below 190.50.
It is good to buy at dips around 192.40-45 with SL around 191.95 for the TP of  193.40/193

ECB QE likely to improve euro area inflation outlook

28 July 2015, 07:38
Given preliminary signs that Euro Area's accommodative monetary policy is working, the sovereign bond QE launched by the ECB is likely to improve the euro area inflation outlook. However, any potential positive effect is likely to take time to unfold.

"Despite the recent increase in Euro Area's headline and core inflation, it is too early to expect a strong upward inflationary trend. Headline inflation is still expected to average +0.2% this year and +1.2% next year, and core inflation to be +0.8% in 2015 and +1.0% in 2016; risks are broadly balanced", says Societe Generale.

The recent rise in headline inflation was mainly led by volatile sub-components, which, despite a timely correlation with currency swings, are not the best indicators to assess whether a sustained return of inflation towards the ECB's medium-term mandate is likely.

Therefore, we believe the ECB will likely focus more on underlying developments within the HICP inflation basket, including non-energy industrial goods (NEIG) and services prices, to mark-to-market whether deflation risks have declined and eventually to what extent.

The only inflationary trend that appears to be consistent with an improved medium-term underlying price outlook is for NEIG prices. Even within that component though, the June data show that its upward trend was mainly led by the durable goods component, which accounts for just 8% of the HICP basket.

"Risks are broadly balanced. The FX pass-through transmission mechanism may spread across the NEIG component, while unprocessed food prices could continue to rise longer than. Contrary to this, the contribution to headline inflation stemming from energy prices may soften in the short term. Finally, the services inflation outlook remains critical but highly uncertain. Secular disinflation will continue in the coming quarters", added Societe Generale. 

South Korea likely to post 1.1% qoq growth in H2

28 July 2015, 07:36
The Bank of Korea released advance Q2 GDP data on 23 July. The Q2 GDP data clearly shows that the weakness in GDP growth was mostly driven by MERS concerns that should be temporary. In the breakdown by expenditure, the private consumption qoq growth fell from 0.6% in Q1 to -0.3% in Q2 and services exports from 2.6% to -7.2%, due to the decline in incoming foreign tourists, notes Societe Generale.

In the breakdown by industry, specific service sectors that should be related to MERS showed relatively significant contractions: wholesale/retail sales and hotel/restaurant businesses (by 0.5%), transportation (by 1.3%) and healthcare and welfare (by 1.7%, people refrained from visiting hospitals for the fear of contagion).

Meanwhile, analysts observes that a few key growth drivers were pretty strong in Q2. Both manufacturing production and merchandise exports, traditional drivers of Korea's exportoriented growth, have shown healthy recovery from the weakness since Q3 2014: Q2 growth in manufacturing production and merchandise exports is 0.8% and 1.1%, respectively. The financial sector was strong (3.7% in Q1, 2.3% in Q2), which is evidence of a credit boom and proves that the BoK's monetary easing policy has been effective.

Sustained growth in construction investment (1.7%) after the volatile movements in Q4 2014 and Q1 2015 due to the "fiscal cliff" is also worthwhile noting. Though the Korean government announced the effective "termination" of the MERS outbreak on 28 July, it may take a few more months until economic activity normalizes from the impacts of MERS.

Accoerding to Societe Generale, "So we cannot rule out a further downgrade in the economic outlook in October, considering that the BoK's current economic outlook is pretty optimistic regarding H2 growth (1.1% qoq per quarter). Nevertheless, we believe that the BoK will remain on hold, even if it lowers the GDP forecast again in October due to weaker-thanexpected Q3 growth, as long as disappointing GDP reflects lingering impacts from MERS and the key growth drivers of exports/manufacturing and financial sectors remain intact."

Euro Area economic activity to accelerate further

28 July 2015, 07:33
World demand to the euro area grew by a meagre 0.3% q/q, while euro area exports were up 0.6% q/q. Monthly trade data available up to May showed some improvement, along with the export growth.
 Growth generally remains constrained by the high level of debt in both the public and private sectors, while adverse demographic trends and structural impediments, such as labour market rigidity and a lack of competition in non-traded goods sectors, remain a major hurdle to further acceleration in activity.

Exports to the US and Japan have remained on a strong footing, while the decline in exports to OPEC, Russia and to a lesser extent China has moderated. In Q1, both investment and public consumption surprised to the upside. Gross fixed investment grew by 0.8% q/q, its strongest pace since Q1 11, as both construction and productive investment were up.

"Although it may be premature to draw strong conclusions from that rebound, this could be related to the better growth outlook and to very easy financial conditions, which may eventually translate into some willingness to expand production capacity", says Societe Generale.

This reflects an easing in the fiscal stance in some member states that were expected three months ago.

Sterling above $1.55 level, ignores upbeat US data

28 July 2015, 07:21
Pair was trading elevated on Monday despite better-than-expected US durable goods orders for June, ahead of Wednesday's conclusion of the FOMC meeting.

Pair stayed in a moderate rebound in July, increasing from the six-week bottom at $1.5328 seen July 8. However, sterling gave up most of its bullish momentum as the trading activity has been locked in a relatively narrow range for the last two weeks.

As for major economic updates, investors digested upbeat durable goods orders for June, which showed a 3.4% hike. Meanwhile, analysts bet for a slightly weaker 3.0% rise, after a revised -2.1% drop booked previously.

However, the main focus remains on Wednesday's conclusion of the Federal Open Market Committee meeting, which is not expected to bring any changes to monetary policy, but Federal Reserve Chair Yellen might suggest some further hints as to when the main rate will be hiked. The September meeting is still in play. Furthermore, US GDP for the second quarter is due on Thursday and should post growth of 2.5%, returning to strong figures after Q1's dismal -0.2%.

Similarly in the UK, the biggest release of this week will release today in form of the first estimate of GDP in the second quarter. The market survey is set for an acceleration to 0.7% quarter-to-quarter, from the figure of 0.4% seen in the March quarter.

Daily Economic Outlook: 28th July 2015

28 July 2015, 07:11
The day's principal data focus will likely be the first estimate of UK GDP in 2015 Q2, expected to confirm that the slowdown in economic activity in Q1 was temporary. While the headline PMIs have in aggregate softened in Q2 relative to Q1, other survey data - such as that from the BCC and CBI - suggest a solid ongoing pace of activity. More importantly, official data for the quarter points to a quicker pace of expansion over Q2, with a notable gain in industrial production in April and May - driven by a surge in oil & gas output - offsetting weak outturns for construction.

Although the first estimate of GDP is based on data covering only about 40% of the economy's output in the quarter and over time tends to undergo revisions, at this stage of the data cycle a 0.6% quarterly GDP gain is anticipated, says Lloyds Bank.

Implicit in this is a 0.2% rise in May's index of services, in line with its long run average expansion; a stronger 0.3% gain would suggest the likelihood of a 0.7% print for growth of Q2 GDP, adds Lloyds Bank.

In advance of the tomorrow's FOMC meeting, further colour on activity trends will be provided by the afternoon's US data. Chiming with recent evidence of stronger turnover in the housing market, S&P/Case-Shiller city house price data for the year to May are expected to post a modest pickup in inflation to 5.6% from 4.9% in April. Meanwhile, following an unexpected June surge in consumer confidence readings on the Conference Board's measure, the index is expected to pull back a little in July, dipping to 100.0, estimates Lloyds Bank.