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NEWS
06 August 2015, 04:30
AUSTRALIA JUL EMPLOYMENT* INCREASE TO +38.5 K (FCAST 10.0 K) VS PREV 7.3 K
The parliamentary spokesman for Greece's ruling Syriza party urged it
on Wednesday to unite behind a new funding agreement, saying the
country wanted a full bailout immediately rather than a bridge loan.
Nikos Filis said Greece was seeking a full agreement so that it could receive a first payment of 25 billion euros.
"We
are seeking to have a deal," he said on state television station ERT.
"The deal will have tough measures. What is important is that the
financing of the Greek economy starts."
Filis was speaking amid
signs of progress in talks between Greece, the International Monetary
Fund and European Union institutions on a new bailout worth up to 86
billion euros ($94.5 billion).
A deal must be must be settled by
Aug. 20, or a second bridge loan agreed, if Greece is to pay off debt of
3.5 billion euros to the European Central Bank that matures on that
day.
Both sides have said such a deal is possible, although the
European Commission described the target as ambitious, suggesting a lot
of work remains to be done.
Filis said Greece wanted the full deal, not a temporary measure.
"We
will not accept new prior actions (reform conditions in place) in order
to have a small bridge loan," Filis said. "We want one final deal to be
signed and then we will see what is needed to have a disbursement of 25
billion euros as the first installment."
He also called for
members of his party, about a quarter of whom oppose the reforms and
austerity linked to the bailout, to put the country first.
"Differences
should not prevail over the party's unity and the country's stability,"
Filis said, warning that a split could damage the government.
"The leftist government will stay in power only if its leftist lawmakers vote in favor (of the bailout)."
Talks between Greece and its international creditors will continue on Wednesday.
ooo
06 August 2015, 04:17
CHINA CBANK INJECTS 35 BLN YUAN THROUGH 7 DAY REVERSE REPOS
NZD/USD continue to trend lower in July
06 August 2015, 04:05
The NZD/USD continue to trend lower in July, despite the NZD bears
disappointed from an only 25bp rate cut of the RBNZ at its July meeting, which
led to some short covering. The significant decline since April has led the NZD
to depreciate 15% against the USD year-todate to 0.6555, and makes the once out
of consensus forecast of 0.67 for year-end now seem a bit
conservative.
Despite the sharp decline in NZD/USD, the RBNZ still prefers NZD lower. In the July OCR decision, the RBNZ believes that further currency depreciation is necessary, albeit dropped the words "unjustifiable and unsustainable". But Governor Wheeler's speech strengthened the FX language further by saying that "a more substantial exchange rate depreciation will be required to stabilize the net external liabilities position relative to GDP". On monetary policy, the RBNZ maintained an explicit easing bias, but pushed back the idea of large declines in OCR rate over coming months.
"Our economists believe that the next move of the RBNZ will be a 25bp rate cut in September, followed by a pause in October, and if the data continues to deteriorate they would put another rate cut of 25bp in for December," notes BofA Merrill Lynch.
Despite the sharp decline in NZD/USD, the RBNZ still prefers NZD lower. In the July OCR decision, the RBNZ believes that further currency depreciation is necessary, albeit dropped the words "unjustifiable and unsustainable". But Governor Wheeler's speech strengthened the FX language further by saying that "a more substantial exchange rate depreciation will be required to stabilize the net external liabilities position relative to GDP". On monetary policy, the RBNZ maintained an explicit easing bias, but pushed back the idea of large declines in OCR rate over coming months.
"Our economists believe that the next move of the RBNZ will be a 25bp rate cut in September, followed by a pause in October, and if the data continues to deteriorate they would put another rate cut of 25bp in for December," notes BofA Merrill Lynch.
RBA to remain on hold over coming months
06 August 2015, 03:50
The RBA is expected to remain on hold over coming months, but maintain a mild
easing bias in order to keep downward pressure on the AUD. Governor Stevens has
communicated a higher hurdle to consideration of further easing in his speech of
22nd July in which he warned of further financial risk-taking. The governor put
particular emphasis on "financial sustainability" in terms of guiding the medium
term policy outlook. He also suggested that lower population growth may mean
that Australia's trend rate of growth might be lower than current estimates of
3.0-3.25%. If so, there is less spare capacity in the economy than previously
though. This would weaken the argument for even more accommodative policy. The
Bank will update forecasts in the Statement on Monetary Policy on Friday 7th
August.
"We are not convinced the bank will make a significant cut in growth forecasts considering May forecasts were based on an AUDUSD assumption of 0.80 and a TWI at 65 (current around 0.73 and 61.4)," says BofA Merrill Lynch.
The GDP forecast for the end of 2015 GDP is currently 2.5%. The Bank appears to be comfortable with the AUD's adjustment, while further weakness is both "likely and necessary."
"We are not convinced the bank will make a significant cut in growth forecasts considering May forecasts were based on an AUDUSD assumption of 0.80 and a TWI at 65 (current around 0.73 and 61.4)," says BofA Merrill Lynch.
The GDP forecast for the end of 2015 GDP is currently 2.5%. The Bank appears to be comfortable with the AUD's adjustment, while further weakness is both "likely and necessary."
Bank of England to raise rates next year
06 August 2015, 03:12
July was a good month for GBP which was the best performing G10 currency
surpassed only by the USD. Both currencies shared a common theme last month,
namely that their respective central banks both reaffirmed the commitment to
hike rates in the coming months. The result has seen GBP out-performance
primarily versus the commodity currencies whilst EUR/GBP finally dipped below
the 0.70 level which had stubbornly held in recent months. Despite another soft
inflation reading, the recent upturn in average earnings data has continued,
making this data series one of the most significant drivers for the currency.
This has prompted a more sustained hawkish tone from the Bank of England with
Governor Carney most explicit in his assertion that the debate on tightening
would come into sharper relief at the "turn of the year".
"Our economists continue to look for the first rate hike in February 2016 and a gradual path thereafter. We continue to focus our bullish GBP strategies via the crosses, where the policy divergence theme is at its strongest," notes BofA Merrill Lynch.
The most pervasive driver for the pound will remain the outlook for UK interest rates. GBP has historically continued to perform well even after the start of a tightening cycle. The fact that broader market positioning is not currently an impediment to GBP upside combined with a relatively benign profile for UK rate hikes next year is reassuring.
"EUR/GBP has bounced impressively from its 0.6936 set in July low but with our European economists raising the possibility of further ECB action, perhaps as early as September, we reaffirm our year-end target of 0.67," added BofA Merrill Lynch.
"Our economists continue to look for the first rate hike in February 2016 and a gradual path thereafter. We continue to focus our bullish GBP strategies via the crosses, where the policy divergence theme is at its strongest," notes BofA Merrill Lynch.
The most pervasive driver for the pound will remain the outlook for UK interest rates. GBP has historically continued to perform well even after the start of a tightening cycle. The fact that broader market positioning is not currently an impediment to GBP upside combined with a relatively benign profile for UK rate hikes next year is reassuring.
"EUR/GBP has bounced impressively from its 0.6936 set in July low but with our European economists raising the possibility of further ECB action, perhaps as early as September, we reaffirm our year-end target of 0.67," added BofA Merrill Lynch.
Mexico’s economic growth takes a step back in May
06 August 2015, 02:38
Mexico's economy continues its recovery after two years of below-potential
growth and it is on its way to growth 2.5% in 2015. But risks are to the
downside, as growth decelerated unexpectedly in May driven by a contraction in
industrial production. The weakness in industrial production was broad-based,
with contractions in manufacturing and construction and only a slight increase
in mining, as oil production finally stop falling. The bright spot in
manufacturing since 2010 has been auto and auto-related
production.
However, manufacturing excluding autos has been weak. And at the margin, production of autos and of manufacturing products ex-autos has moderated. In both cases the deceleration seems to be in line with developments in the US.
"We believe the story is cyclical and expect manufacturing to gain strength with the US, but we are vigilant of potential structural stories that could be developing and that are difficult to identify at this point," notes BofA Merrill Lynch.
However, manufacturing excluding autos has been weak. And at the margin, production of autos and of manufacturing products ex-autos has moderated. In both cases the deceleration seems to be in line with developments in the US.
"We believe the story is cyclical and expect manufacturing to gain strength with the US, but we are vigilant of potential structural stories that could be developing and that are difficult to identify at this point," notes BofA Merrill Lynch.
Thailand’s economic outlook deteriorating
06 August 2015, 02:14
The recovery path in 2Q appears to be worse than expected. Data up to May
show the economy lost momentum. Consumption was weak and exports fell. Tourism
remained strong and was the only bright spot, but it was not enough to support
the overall recovery. In late June, the Bank of Thailand revised down its 2015
growth forecast to 3% from 3.8% and said that downside risks
remain.
"We are more pessimistic and cut our 2015 growth forecast to 2.5% from 3.3% this year, versus consensus at 3%," notes BofA Merrill Lynch.
The slowing economic activity coupled with worsening drought conditions dampened domestic sentiment, adding to growth risks in 2H. Deterioration in commercial banks' asset quality has extended from consumer loans to SMEs. The business community and bankers have urged the government to help SMEs by providing them with soft loans. While the government appeared to be receptive, no substantive progress has been made thus far. Further action may be pending given persistent speculation of a cabinet reshuffle, which could involve the removal of key economic ministers.
The baht weakened by 3% over the past three weeks, well ahead of other Asian currencies, with the exception of the Korean won. This could in part be a reflection of market concerns about Thailand's policy vacuum and deterioration in the country's economic outlook.
"We are more pessimistic and cut our 2015 growth forecast to 2.5% from 3.3% this year, versus consensus at 3%," notes BofA Merrill Lynch.
The slowing economic activity coupled with worsening drought conditions dampened domestic sentiment, adding to growth risks in 2H. Deterioration in commercial banks' asset quality has extended from consumer loans to SMEs. The business community and bankers have urged the government to help SMEs by providing them with soft loans. While the government appeared to be receptive, no substantive progress has been made thus far. Further action may be pending given persistent speculation of a cabinet reshuffle, which could involve the removal of key economic ministers.
The baht weakened by 3% over the past three weeks, well ahead of other Asian currencies, with the exception of the Korean won. This could in part be a reflection of market concerns about Thailand's policy vacuum and deterioration in the country's economic outlook.
Taiwan: Bleak export prospects, lowering GDP
06 August 2015, 01:53
Taiwan exports contracted a sharp 13.9% yoy in June after declining 3.8% yoy
in May. Three aspects in the June release are particularly worrying: 1) tech
exports declined by double digits for the first time since July 2012; 2) exports
to all key destinations declined; and 3) real exports (nominal/headline exports
adjusting for export price) slumped after a brief improvement in
May.
Overall in 1H15, headline exports dropped 7.1% yoy, weaker than the 4.2% yoy decline in 1Q15 and the 2.7% yoy gain in 2014, as external demand disappointed earlier expectations. The continued softness in tech exports is not just due to the ongoing sluggish external demand. Rather, this was due to 1) loss of competitiveness in Taiwan's electronic sector; and 2) China's economic transformation, where China is grooming its own supply chain and reducing its reliance on Taiwan for technology imports.
"We lowered our Taiwan GDP forecasts to 3.2% yoy (from 3.5% yoy) for 2015 and 3.5% yoy (from 3.7%) for 2016 as headline exports continue to struggle and export recovery remains elusive. Recall that exports are equivalent to about 70% of nominal GDP and are thus the pillar for the Taiwan economy. Our revised forecast is slightly lower than the government's current 2015 GDP estimate at 3.3% yoy," says BofA Merrill Lynch.
Overall in 1H15, headline exports dropped 7.1% yoy, weaker than the 4.2% yoy decline in 1Q15 and the 2.7% yoy gain in 2014, as external demand disappointed earlier expectations. The continued softness in tech exports is not just due to the ongoing sluggish external demand. Rather, this was due to 1) loss of competitiveness in Taiwan's electronic sector; and 2) China's economic transformation, where China is grooming its own supply chain and reducing its reliance on Taiwan for technology imports.
"We lowered our Taiwan GDP forecasts to 3.2% yoy (from 3.5% yoy) for 2015 and 3.5% yoy (from 3.7%) for 2016 as headline exports continue to struggle and export recovery remains elusive. Recall that exports are equivalent to about 70% of nominal GDP and are thus the pillar for the Taiwan economy. Our revised forecast is slightly lower than the government's current 2015 GDP estimate at 3.3% yoy," says BofA Merrill Lynch.
Canada merchandise trade outperforms expectations in June
06 August 2015, 01:30
Canada's June merchandise trade was considerably better than expected,
showing a narrowing of the deficit to -0.48bn vs. est. -2.9bn. The report was
all around solid, and it's hard to find any concerns within the details. In
volume terms, exports were up 4.3% and imports down 0.9%.
For exports, this was the first monthly increase after five months of declines, and the breadth and composition were both encouraging-up in 9 of 11 sectors, with strong gains outside of energy. While these monthly trade reports can be quite volatile, such a solid print should provide a bit of relief to a BoC that has been looking for this export pickup.
For exports, this was the first monthly increase after five months of declines, and the breadth and composition were both encouraging-up in 9 of 11 sectors, with strong gains outside of energy. While these monthly trade reports can be quite volatile, such a solid print should provide a bit of relief to a BoC that has been looking for this export pickup.
UK services PMI mildly disappointed
06 August 2015, 01:09
UK services PMI mildly disappointed at 57.4 (cons: 58.0), dragging the
overall composite down to 56.6 (from 57.4). Taken together with the construction
and manufacturing indices earlier this week, these outturns are still broadly
consistent with the Q3 GDP forecast of 0.7% q/q. The much more important UK
developments come tonight, with the BoE's 'Mega Thursday' where we get the rate
decision, MPC minutes, and Inflation Report.
"We have a long GBP bias leading in the event, where we expect the overall takeaway will be that the BoE has taken a measurable step closer to a rate hike," says RBC Capital Markets.
The three MPC members are expected to vote for a rate hike this time, and alongside further signs of accelerating wages, OIS markets appear too dovishly priced (full rate rise priced by May/Jun'16).
"We have a long GBP bias leading in the event, where we expect the overall takeaway will be that the BoE has taken a measurable step closer to a rate hike," says RBC Capital Markets.
The three MPC members are expected to vote for a rate hike this time, and alongside further signs of accelerating wages, OIS markets appear too dovishly priced (full rate rise priced by May/Jun'16).
South Korea's growth outlook remains to the downside
06 August 2015, 00:59
South Korea's advance GDP growth for 2Q expanded at a slower pace than in 1Q.
Amid sluggish consumption and anemic exports, 2Q GDP growth moderated to 2.2%
yoy from 2.5% yoy in 1Q. GDP growth was dragged by weaker private consumption
(-0.3% qoq vs +0.6% qoq) caused by the MERS fallout and severe drought. The
negative impact of MERS will likely linger into 3Q. In addition, Bank of Korea's
governor hinted at additional downside risks due to regional
droughts.
"We expect the recently introduced fiscal stimulus plan to help offset headwinds from consumption and exports to a certain extent. That said, recovery in consumption will likely only progress at a glacial pace, if we recall the ferry tragedy and its aftermath," says BofA Merrill Lynch.
Further, the number of foreign visitors to Korea has not shown any clear signs of rebound yet. This suggests that retail sales may fail to pick up speed as fast as expected.
"We maintain our GDP forecast at 2.7% yoy, but the risk remains to the downside," added BofA Merrill Lynch.
"We expect the recently introduced fiscal stimulus plan to help offset headwinds from consumption and exports to a certain extent. That said, recovery in consumption will likely only progress at a glacial pace, if we recall the ferry tragedy and its aftermath," says BofA Merrill Lynch.
Further, the number of foreign visitors to Korea has not shown any clear signs of rebound yet. This suggests that retail sales may fail to pick up speed as fast as expected.
"We maintain our GDP forecast at 2.7% yoy, but the risk remains to the downside," added BofA Merrill Lynch.