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NEWS
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.
THAI 2015 EXPORTS SEEN -4.0 PCT (VS +0.2 PCT SEEN IN APRIL) - FINANCE MINISTRY
THAI 2015 GDP GROWTH SEEN AT 3 PCT (VS 3.7 PCT PROJECTED IN APRIL) - FINANCE MINISTRY
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.
THAI 2015 EXPORTS SEEN -4.0 PCT (VS +0.2 PCT SEEN IN APRIL) - FINANCE MINISTRY
THAI 2015 GDP GROWTH SEEN AT 3 PCT (VS 3.7 PCT PROJECTED IN APRIL) - FINANCE MINISTRY
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.
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.
Further BoK rate cut in early 2016?
28 July 2015, 07:20
If Korean GDP growth continues to disappoint in Q3 and Q4 2015, and if the
BoK has to revise down its GDP growth again in January 2016, it can no longer be
ascribed to temporary shocks from MERS concerns.
Further BoK rate cuts can be considered as an alternative scenario. In that event, the additional rate cut is more likely to take place in early 2016 than in H2 2015.
Something has got to be wrong, and the BoK may have to address the slowdown in GDP growth by further easing actions. Even household debt management measures may be mitigated if they really cause a significant slowdown in housing markets, credit expansion or domestic demand.
"Of course, there might be no changes in the BoK policy rate throughout 2016, on the assumption of a sustained credit expansion that should ultimately lead to a visible recovery in domestic demand", says Societe Generale.
Further BoK rate cuts can be considered as an alternative scenario. In that event, the additional rate cut is more likely to take place in early 2016 than in H2 2015.
Something has got to be wrong, and the BoK may have to address the slowdown in GDP growth by further easing actions. Even household debt management measures may be mitigated if they really cause a significant slowdown in housing markets, credit expansion or domestic demand.
"Of course, there might be no changes in the BoK policy rate throughout 2016, on the assumption of a sustained credit expansion that should ultimately lead to a visible recovery in domestic demand", says Societe Generale.
28 July 2015, 07:17
AUD/USD HIT A YEARLY LOW AT 0.72596
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.
CCI (50)- Buy
Ichimloku- Buy
ADX - Buy
It is good to buy at dips around 0.9610 with SL around 0.9550 for the TP of 0.9720
VIETNAM JAN-JULY OIL PRODUCT IMPORTS SEEN UP 7.7 PCT YR/YR AT 5.89 MILLION TONNES - GOVT
VIETNAM JAN-JULY CRUDE OIL EXPORTS -0.3 PCT YR/YR TO 5.35 MILLION TONNES - GOVT
VIETNAM JAN-JULY IMPORTS +16.4 PCT Y/Y TO $95.64 BLN - GOVT
VIETNAM JULY TRADE DEFICIT ESTIMATED AT $300 MLN VS JUNE REVISED DEFICIT OF $140 MLN - GOVT
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.
USD/CHF faces resistance around 0.9635,break above targets 0.972
28 July 2015, 07:03
- USD/CHF has formed Big W Pattern with major resistance around 0.9635 and
any break above confirms bullishness , a jump till 0.9690/0.9800 is
possible.
- On the downside minor support is around 0.9595 and any break below targets
0.9550/0.9520.
- Overall bullish invalidation only below 0.9520 level.
- The pair's major resistance is around 0.9635 and any break above would extend gains till 0.9680/0.9720
CCI (50)- Buy
Ichimloku- Buy
ADX - Buy
It is good to buy at dips around 0.9610 with SL around 0.9550 for the TP of 0.9720
VIETNAM JAN-JULY OIL PRODUCT IMPORTS SEEN UP 7.7 PCT YR/YR AT 5.89 MILLION TONNES - GOVT
VIETNAM JAN-JULY CRUDE OIL EXPORTS -0.3 PCT YR/YR TO 5.35 MILLION TONNES - GOVT
VIETNAM JAN-JULY IMPORTS +16.4 PCT Y/Y TO $95.64 BLN - GOVT
VIETNAM JULY TRADE DEFICIT ESTIMATED AT $300 MLN VS JUNE REVISED DEFICIT OF $140 MLN - GOVT
28 July 2015, 06:50
VIETNAM JAN-JULY EXPORTS +9.5 PCT Y/Y TO $92.27 BLN - GOVT
28 July 2015, 06:36
A new notice was posted on the Federal Reserve's website, which reports 2015
GDP growth of 1.55%. The lower number implies that Fed staff took the -0.2%
print of Q1 GDP as representative of the underlying momentum in the economy and
carried some of that weakness forward into Q2 and perhaps beyond.
The low staff forecast explains much of the dovish shift in tone surrounding the June FOMC meeting. The 1.55% projection for Q4/Q4 growth in 2015 is very weak. The Fed's June forecast yields a 0.9% Q2 growth rate. If the FOMC believed the staff June forecast, they were seeing an economy very different from what we perceived.
"Should such a forecast be realized, the FOMC would likely postpone its tightening cycle until the economy reached a firmer footing. The forecast has not been realized", says Barclays.
September call is still expected. Data received since mid-June have generally surprised on the upside, pushing the Q2 tracking estimate to 3.4%. Fed staff will likely revise their 2015 forecast higher, as their Q2 estimate rises in response to the data flow.
The upward revision to the forecast should give the FOMC increased confidence in the underlying momentum in the US economy, keeping them on track for a rate hike this year. Indeed, the Chair's less dovish tone in her testimony before Congress two weeks ago compared with that in the press conference following the June meeting likely reflects an upwardly revised staff forecast.
INDIAN BANKS BORROWED 4.85 BLN RUPEES VIA MARGINAL STANDING FACILITY ON JULY 27 - RBI
INDIA GOVT SURPLUS CASH BALANCE WITH RBI FOR AUCTION WAS 150.44 BLN RUPEES AS ON JULY 27 – CBANK
CCI (50)- Sell
Ichimloku- buy
ADX - Sell
It is good to sell on rallies around 123.60-65 with SL around 124.20 for the TP of 122.90/122.45
The low staff forecast explains much of the dovish shift in tone surrounding the June FOMC meeting. The 1.55% projection for Q4/Q4 growth in 2015 is very weak. The Fed's June forecast yields a 0.9% Q2 growth rate. If the FOMC believed the staff June forecast, they were seeing an economy very different from what we perceived.
"Should such a forecast be realized, the FOMC would likely postpone its tightening cycle until the economy reached a firmer footing. The forecast has not been realized", says Barclays.
September call is still expected. Data received since mid-June have generally surprised on the upside, pushing the Q2 tracking estimate to 3.4%. Fed staff will likely revise their 2015 forecast higher, as their Q2 estimate rises in response to the data flow.
The upward revision to the forecast should give the FOMC increased confidence in the underlying momentum in the US economy, keeping them on track for a rate hike this year. Indeed, the Chair's less dovish tone in her testimony before Congress two weeks ago compared with that in the press conference following the June meeting likely reflects an upwardly revised staff forecast.
INDIAN BANKS BORROWED 4.85 BLN RUPEES VIA MARGINAL STANDING FACILITY ON JULY 27 - RBI
INDIA GOVT SURPLUS CASH BALANCE WITH RBI FOR AUCTION WAS 150.44 BLN RUPEES AS ON JULY 27 – CBANK
28 July 2015, 06:30
- USD/JPY has declined till 123 yesterday and is currently trading at
123.42.
- Any further bullishness can be seen only above 124.20 level.
- On the lower side minor support are at 123.20 and any break below will drag
the pair further down till 122.90/122.40.
- The pair's resistance is at 124.20 and above that will take the pair to next level at 124.50/125.
CCI (50)- Sell
Ichimloku- buy
ADX - Sell
It is good to sell on rallies around 123.60-65 with SL around 124.20 for the TP of 122.90/122.45
28 July 2015, 05:56
Moody's Investors Service says that China's (Aa3 stable) new silk roads --
through which it seeks to deepen economic integration with more than 40
participating countries across three continents -- are credit positive for the
emerging market sovereigns involved.
Moody's expects that the Silk Road Economic Belt and 21st Century Maritime Silk Road, which China refers to as its "Belt and Road" strategy, or "One Belt, One Road," will mostly benefit smaller sovereigns with relatively low per-capita incomes, financing constraints on their current account positions, and low investment rates.
Moody's conclusions were contained in its just-released report, "China's Belt and Road Strategy -- Credit Positive for Emerging Markets."
Moody's rates about two-thirds of the sovereigns across the Belt and Road. Of these, more than half are sub-investment grade. Other common threads linking these countries are that they have relatively underdeveloped economies with large infrastructure gaps, and tend to have modest per-capita incomes.
Their natural resource wealth has fueled dynamic growth, and although the recent collapse in commodity prices clouds the economic outlook for these countries, they exhibit fairly strong growth potential.
In this context, the new silk roads could have a transformational impact for smaller, infrastructure-impoverished countries in South and Southeast Asia, by spurring investment and boosting economic growth potential.
Among Moody's rated sovereigns, Bangladesh (Ba3 stable), Cambodia (B2 stable), Pakistan (B3 stable) and Vietnam (B1 stable) are likely to be the biggest beneficiaries of infrastructure investment.
But infrastructure financing could put pressure on the government balance sheets of participating economies.
Moody's also expects bilateral trade flows to receive a boost, particularly in Central Asia, bolstered by infrastructure development. Kazakhstan (Baa2 stable) and Mongolia (B2 negative) are among the rated sovereigns that will benefit from improved trade linkages.
Still, Moody's believes that Belt and Road projects face numerous challenges. Most participating governments face considerable institutional and political challenges and risks in project implementation that could slow execution.
For China itself, the new silk roads have tangible benefits as they will help counteract the country's economic slowdown by jump-starting investment. They will also boost exports and provide the access to commodities necessary for China to sustain strong economic growth.
Moody's expects that the Silk Road Economic Belt and 21st Century Maritime Silk Road, which China refers to as its "Belt and Road" strategy, or "One Belt, One Road," will mostly benefit smaller sovereigns with relatively low per-capita incomes, financing constraints on their current account positions, and low investment rates.
Moody's conclusions were contained in its just-released report, "China's Belt and Road Strategy -- Credit Positive for Emerging Markets."
Moody's rates about two-thirds of the sovereigns across the Belt and Road. Of these, more than half are sub-investment grade. Other common threads linking these countries are that they have relatively underdeveloped economies with large infrastructure gaps, and tend to have modest per-capita incomes.
Their natural resource wealth has fueled dynamic growth, and although the recent collapse in commodity prices clouds the economic outlook for these countries, they exhibit fairly strong growth potential.
In this context, the new silk roads could have a transformational impact for smaller, infrastructure-impoverished countries in South and Southeast Asia, by spurring investment and boosting economic growth potential.
Among Moody's rated sovereigns, Bangladesh (Ba3 stable), Cambodia (B2 stable), Pakistan (B3 stable) and Vietnam (B1 stable) are likely to be the biggest beneficiaries of infrastructure investment.
But infrastructure financing could put pressure on the government balance sheets of participating economies.
Moody's also expects bilateral trade flows to receive a boost, particularly in Central Asia, bolstered by infrastructure development. Kazakhstan (Baa2 stable) and Mongolia (B2 negative) are among the rated sovereigns that will benefit from improved trade linkages.
Still, Moody's believes that Belt and Road projects face numerous challenges. Most participating governments face considerable institutional and political challenges and risks in project implementation that could slow execution.
For China itself, the new silk roads have tangible benefits as they will help counteract the country's economic slowdown by jump-starting investment. They will also boost exports and provide the access to commodities necessary for China to sustain strong economic growth.
Moody's: Korea's new measures to stem household debt are credit positive
28 July 2015, 05:46
Moody's Investors Service says that Korea's (Aa3 positive) latest measures to
contain the country's high levels of household debt will have a positive
long-term effect on financial stability and ultimately support the sovereign
credit profile.
But increased restrictions on mortgage lending will pose downside risks to GDP growth in 2016.
Moody's conclusions were contained in its just-released report on Korea, entitled "Korea, Government of: Tighter Household Debt Management Poses Downside Risk to Growth in 2016."
According to the 22 July announcement, the Korean government will increase target shares for fully amortizing mortgages and fixed rate loans, and urged lenders to focus more strictly on households' repayment ability, effective from January 2016.
From September, the authorities will also strengthen rules governing and monitoring of the non-bank sector. The measures follow the launch of a mortgage refinance program in March.
Korea's households have increased their borrowing over the past decade and have debt levels similar to some of the most indebted advanced economies, at around 73% of GDP as of the end of 2014.
Moody's does not view the high levels of household debt as posing a systemic risk given that most debt is held by high-income households, whose financial assets are worth more than double their liabilities.
Under the new measures, households will have to make principal payments toward fixed-rate mortgages on a monthly basis, while interest-only bullet loans merely require interest payments until the end of the loan term.
The overall amount to be repaid is likely to be lower under the new structure, alleviating potential longer-term risks to household financial stability, says the rating agency.
However, the temporal distribution of the payments will likely place additional downward pressure on consumption and GDP growth in the near term, at a time of already weak domestic demand, particularly since private consumption constitutes around half of nominal GDP.
Weak external demand amid slower global growth, combined with dampened domestic demand in the second quarter as a result of the recent outbreak of Middle East Respiratory Syndrome (MERS), has led Moody's to lower its forecast for real GDP growth to 2.7% this year, and 3.0% in 2016.
But increased restrictions on mortgage lending will pose downside risks to GDP growth in 2016.
Moody's conclusions were contained in its just-released report on Korea, entitled "Korea, Government of: Tighter Household Debt Management Poses Downside Risk to Growth in 2016."
According to the 22 July announcement, the Korean government will increase target shares for fully amortizing mortgages and fixed rate loans, and urged lenders to focus more strictly on households' repayment ability, effective from January 2016.
From September, the authorities will also strengthen rules governing and monitoring of the non-bank sector. The measures follow the launch of a mortgage refinance program in March.
Korea's households have increased their borrowing over the past decade and have debt levels similar to some of the most indebted advanced economies, at around 73% of GDP as of the end of 2014.
Moody's does not view the high levels of household debt as posing a systemic risk given that most debt is held by high-income households, whose financial assets are worth more than double their liabilities.
Under the new measures, households will have to make principal payments toward fixed-rate mortgages on a monthly basis, while interest-only bullet loans merely require interest payments until the end of the loan term.
The overall amount to be repaid is likely to be lower under the new structure, alleviating potential longer-term risks to household financial stability, says the rating agency.
However, the temporal distribution of the payments will likely place additional downward pressure on consumption and GDP growth in the near term, at a time of already weak domestic demand, particularly since private consumption constitutes around half of nominal GDP.
Weak external demand amid slower global growth, combined with dampened domestic demand in the second quarter as a result of the recent outbreak of Middle East Respiratory Syndrome (MERS), has led Moody's to lower its forecast for real GDP growth to 2.7% this year, and 3.0% in 2016.
28 July 2015, 05:40
U.S. SENATE VOTES TO ATTACH RENEWAL OF EXPORT-IMPORT BANK CHARTER TO
MULTI-YEAR TRANSPORTATION BILL; FATE OF COMBINED MEASURE STILL UNCERTAIN