16 July Movers and shakers. Currencies (vs. USD)

Transcription

1 16 July 2012 Markets mostly focused on global growth concerns with key central banks tweaking and easing policy on signs of subdued activity But Fed FOMC minutes were less dovish than expected and dented expectations of QE3 Markets will focus on Fed Chairman Bernanke s semi-annual testimony this week for clues on monetary policy Key data to be released this week includes inflation from the US, the eurozone, India and the UK Movers and shakers Equities generally ended lower last week with commodity and bond prices moving higher Equities Commodities Bonds (%) Asian IG US Corp Global HY Global EM GlobalAgg Gold WTI Crude oil Shanghai Comp India Sensex MSCI EM Nikkei 225 FTSE 100 Euro Stoxx S&P 500 MSCI ACWI Equities Bonds (10-year) Weekly change (%) 3.0 Best France Mexico Germany South Korea Weekly index change in local currency for G20 markets. Worst Saudi Arabia Japan Weekly yield change (bp) 50 Best Mexico Turkey South Korea Weekly change for G20 markets (10 yr bond yields). Japan Worst Indonesia Italy Currencies (vs. USD) The Indian rupee appreciated the most against the USD last week (%) Developed Asia Emerging -1.0 TRY ZAR RUB MX N BRL KR W IDR INR CHN AUD CAD JPY EUR GBP

2 Macro Data and Key Events Past Week (9-13 July) Date Country Indicator Date as of Survey Actual Prior Monday 9 July China Consumer Price Index (YoY) JUN 2.3% 2.2% 3.0% China Producer Price Index (YoY) JUN -2.0% -2.1% -1.4% Tuesday 10 July China Exports (YoY) JUN 10.6% 11.3% 15.3% China Imports (YoY) JUN 11.0% 6.3% 12.7% Wednesday 11 July US Minutes of FOMC Meeting Brazil SELIC Target - Central Bank JUL 8.0% 8.0% 8.5% Thursday 12 July Korea Interest rate decision JUL - 3.0% 3.25% Friday 13 July Japan BoJ interest rate decision JUL 0.1% 0.1% 0.1% China Industrial Production (YoY) JUN 9.8% 9.5% 9.6% China Real GDP (YoY) 2Q 7.8% 7.6% 8.1% Russia Russia Refinancing Rate JUL 8.00% 8.00% Growth concerns and interest rate decisions have dominated the market last week as the weak non-farm payroll number from last week followed by moderation in China s imports extended the downbeat tone on overall global recovery. Reinforcing the growth fear, China s Q2 GDP growth rate slowed down to a three year low of 7.6% yoy in Q2, from 8.1% yoy in Q1 and was slightly below expectations of 7.8% yoy growth in Q2. But monthly data for June such as industrial production suggest a moderation in the pace of the slowdown towards the end of the second quarter, at least in some sectors. June s headline CPI inflation in China decelerated to 2.2% yoy from 3.0% yoy in May and is the lowest reading since January As inflation is likely to ease further in the coming months, this provides sufficient room for more aggressive policy easing to support economic growth. There were a few interest rate decisions last week. The Bank of Japan (BoJ) kept interest rates unchanged with the Asset Purchase Programme (APP) maintained at JPY 70trn. As expected, the Brazilian central bank cut the SELIC target rate 50bps to a new record low of 8.0%. The statement repeated that at this juncture the risks to the inflation outlook are limited and that up to now, given the fragility of the global economy, the contribution of the external backdrop has been disinflationary. There was no reference in the statement to suggest the potential near-term ending of the current easing cycle. Bank of Korea unexpectedly cut interest rates by 25bps to 3.0% for the first time since February 2009, to help the economy return to its longterm growth path. Russia kept interest rates on hold at 8.0% as expected but changed the tone in the accompanying press release leaving the door open for a policy rate change as early as at a next meeting. The much awaited FOMC minutes were less dovish than expected, hence denting expectations of QE3. The minutes of the FOMC held on June showed that an increasing number of Fed officials appear open to additional easing should the economic outlook deteriorate further. In that sense, the minutes were relatively disappointing as markets were looking for more clarity in the conduct of monetary policy in the near future. In the ratings world, Moody s downgraded Italy s sovereign rating by 2 notches, from A3 to Baa2. The outlook remains negative. The rationale for the downgrade is a higher cost of funding due to increasingly fragile market confidence and a weak near-term economic outlook which creates risk of failure to meet fiscal consolidation targets. Coming Week (16 20 July) Date Country Indicator Date as of Survey Prior Monday 16 July Eurozone Consumer Price Inflation (YoY) Jun F 2.4% 2.4% US Empire Manufacturing Jul US Fed Chairman Bernanke semi-annual testimony to Congress Jun 0.20% -0.20% July China Actual Foreign Direct Investment (YoY) Jun -2.0% 0.1% India Monthly Wholesale Prices YoY% Jun 7.6% 7.6% July Russia Industrial Production (YoY) Jun 3.0% 3.7% Tuesday 17 July UK Consumer Price Inflation (YoY) Jun 2.8% 2.8% Germany ZEW Survey (Econ. Sentiment) Jul US Consumer Price Index (YoY) Jun 1.6% 1.7% US Industrial Production Jun 0.4% -0.1% Wednesday 18 July UK Bank of England Minutes UK ILO Unemployment Rate (3mths) May 8.2% 8.2% Thursday 19 July Brazil COPOM Monetary Policy Meeting Minutes US Philadelphia Fed. Survey Jul Friday 20 July Brazil Consumer Price Inflation IPCA (IBGE) (MoM) Jul 0.16% 0.18% F Final 16/07/2012 Investment Weekly 2

3 In the US, the week starts off with the release of the empire manufacturing index which is expected to come in at 5.0 in July. The headline index has been volatile, rising or falling by 10 points or more in each of the past three months. In June the index fell to 2.3% from On Tuesday, the Federal Reserve Chairman Ben Bernanke delivers the semi-annual monetary policy report to Congress and will discuss the outlook for the US economy. Bernanke may also give hints about the direction monetary policy might take. Consumer price inflation is expected to come in lower at 1.6% yoy for June, from 1.7% yoy in May, led by lower energy prices and food price inflation. Lower transport and production costs may have also started to filter through. UK consumer price inflation has surprised on the downside for the past two months as the price of oil fell and retailers kept discounting. The June producer price inflation showed factory gate prices falling faster than before, and retailers may have used promotions to drive volumes during the Queen s Diamond Jubilee celebrations. Therefore, inflation on a monthly basis is likely to have declined further in June with the annual rate stable at 2.8% yoy. The UK labour market has finally shown some signs of improvement. Unemployment fell in the three months to April, and the quarterly workforce jobs data showed the largest qoq increase since records began. However, ILO unemployment is expected to remain stable at 8.2%. In the eurozone, there are very few major economic data releases this week. The flash release of consumer price inflation, which remained steady in June, at 2.4%, is likely to be confirmed in the final release. Despite a moderate rebound in the stock market and less inflationary pressure, uncertainties in the eurozone and intensified discussions about the future of monetary union have been weighing heavily on German sentiment. The ZEW economic expectations collapsed 27.7 points in June to points. In July, ZEW is expected at Over in emerging markets, Inflation in India is still simmering despite the slowdown in economic growth, partly due to the supplyled nature of the slowdown. Respondents to the manufacturing PMI survey have reported that firm demand as well as higher fuel prices, wage costs and taxes are behind the price pressures faced by firms. Looking ahead, inflationary pressures will likely remain in place as the impact from administered fuel price increases and rupee depreciation pass through. As widely expected, Brazil cut interest rates by 50bp to 8% at the last meeting. The press statement released after the meeting used exactly the same wording as the previous one. The meeting minutes to be released on Friday should provide an insight into the decision. Market Moves Developed equity markets declined on poor economic data and disappointing FOMC meeting Most developed market stocks sold off last week on poor economic data, trade data in China and non manufacturing ISM in the US, and disappointing minutes of the FOMC held on June Earlier in the week, a surge in borrowing costs in Italy and Spain added pressure to stocks in the region, but they subsequently clawed back some of initial losses after eurozone finance ministers pledged EUR 30 billion in emergency loans to Spanish banks by the end of this month. The S&P 500 ended the week up to 1,356. Although the Eurostoxx 50 Index ended the week up 0.06%, apart from Germany, all other primary equity indices for individual countries in the region were down. Over the week, Asian stocks went down in the aftermath of relatively disappointing US employment data released on July 6 and the minutes of the FOMC meeting released on Wednesday. There was a net divide between South East Asian markets that managed to gain modestly on the week, and the rest of the region. Traditionally, South East Asia offers a good diversification in periods of uncertainty and weakening economic cycle. North Asia is more industrialised and more dependent on developed economic cycles. The biggest losers last week were Hong Kong and Taiwan, both down 3.6%, followed by Japan at -3.3% and Korea at -2.4%. India was depressed by earnings revisions by major companies and fell 1.7% over the week. In the Philippines, despite the sovereign rating upgrade of previous week, the stock market contracted quite markedly 2.8%, suggesting that investors had already priced in the news and they don't expect any additional improvement in the near term. Core government bond yields fell while Eurozone periphery bond yields remained volatile Safe haven bond markets remained well-bid last week, with US 10-year treasury yields falling 6bps to 1.49% over the course of the week. The UK 10-year gilts yield and the German 10-year bund yield also fell around 10bps over the course of the week. Eurozone periphery bond yields remain volatile. Spanish 10-year bond yields briefly traded above 7.0% early in the week, but prices recovered and yields fell, after the eurozone finance ministers meeting agreed an initial EUR 30 billion loan disbursement for Spanish banks. Oil and gold advanced on China stimulus speculations Oil and gold advanced on China stimulus speculations. Crude oil rallied last week after oil strikes in Norway ended, US crude inventories declined and on growing speculation that China will boost stimulus measures. Brent and WTI crude oil ended the week up 1.8% and 1.4% respectively. Gold gained more modestly by 0.3% to USD 1,588 as slowing growth in China fuelled speculation that policy makers would add to stimulus measures. 16/07/2012 Investment Weekly 3

4 Market Data 1-week 1-Month 3-Month 1-Year YTD 52-Week 52-Week Fwd Close Change Change Change Change Change High Low P/E Equity Indices (% ) (% ) (% ) (% ) (% ) (X) World MSCI AC World Index (USD) North America US Dow Jones Industrial Average 12, ,339 10, US S&P 500 Index ,797 1, US NASDAQ Composite Index 2, ,134 2, Canada S&P/TSX Composite Index 11, ,516 10, Europe MSCI AC Europe (USD) Europe Dow Jones STOXX 50 Index 2, ,576 1, UK FTSE 100 Index 5, ,989 4, Germany DAX Index 6, ,383 4, France CAC-40 Index 3, ,866 2, Spain IBEX 35 Index 6, ,222 5, Asia Pacific MSCI AC Asia Pacific ex Japan (USD) Japan Nikkei-225 Stock Average 8, ,255 8, Australian Stock Exchange 200 4, ,612 3, Hong Kong Hang Seng Index 19, ,808 16, Shanghai Stock Exchange Composite Index 2, ,961 2, Hang Seng China Enterprises Index 9, ,652 8, Taiwan TAIEX Index 7, ,820 6, Korea KOSPI Index 1, ,175 1, India SENSEX 30 Index 17, ,945 15, Indonesia Jakarta Stock Price Index 4, ,235 3, Malaysia Kuala Lumpur Composite Index 1, ,633 1, Philippines Stock Exchange PSE Index 5, ,403 3, Singapore FTSE Straits Times Index 2, ,227 2, Thailand SET Index 1, , Latam Argentina Merval Index 2, ,397 2, Brazil Bovespa Index 54, ,970 47, Chile IPSA Index 4, ,767 3, Colombia IGBC Index 13, ,478 12, Mexico Index 40, ,583 31, EEMEA Russia MICEX Index 1, ,742 1, South Africa JSE Index 33, ,809 28, Turkey ISE 100 Index 62, ,617 48, week 1-Month 3-Month 1-Year YTD Close Change Change Change Change Change Bond indices (% ) (% ) (% ) (% ) (% ) BarCap GlobalAgg (Hedged in USD) JPM EMBI Global BarCap US Corporate Index (USD) BarCap Euro Corporate Index (Eur) BarCap Global High Yield (USD) JPM Asian Investment grade (USD) HSBC Asian Bond Index /07/2012 Investment Weekly 4

5 Market Data (cont) 1-week 1-Month 3-Months 1-Year Year End Bonds Close Ago Ago Ago Ago 2011 US Treasury yields (%) 3-Month Year Year Year Year Developed market 10-year bond yields (%) Japan UK Germany France Italy Spain week 1-Month 3-Month 1-Year YTD 52-Week 52-Week Commodities Change Change Change Change Change High Low Close (% ) (% ) (% ) (% ) (% ) Gold 1, ,921 1,523 Brent Oil WTI Crude Oil R/J CRB Futures Index LME Copper 7, ,905 6,635 16/07/2012 Investment Weekly 5

6 Market Trends Government bond yields (%) /11 09/11 11/11 01/12 03/12 05/12 US (lhs) Germany (rhs) Yields based on 10 year government bonds Italy (rhs) Major currencies (vs.usd) EUR (lhs) GBP (lhs) JPY (rhs) All values versus USD Global equities Emerging Asian equities US Dow Jones Index (lhs) Euro Stoxx 50 Index (rhs) China Shanghai Index (lhs) Hong Kong Hang Seng (rhs) India Sensex Index (rhs) Other emerging equities Global credit indices /11 08/11 09/11 10/11 11/11 12/11 01/12 02/12 03/12 04/12 05/12 06/12 Russia MICEX Index (lhs) Brazil Bovespa Index (rhs) /11 08/11 09/11 10/11 11/11 12/11 01/12 02/12 03/12 04/12 05/12 06/12 BarCap EU corporate Index (lhs) BarCap US corporate Index (rhs) Emerging markets spreads (USD indices) Commodities (USD) USD USD /11 08/11 09/11 10/11 11/11 12/11 01/12 02/12 03/12 04/12 05/12 06/12 HSBC Asian Bond Index (lhs) JP Morgan EMBI global spread index (rhs) Gold (lhs) Brent Oil (rhs) 16/07/2012 Investment Weekly 6

7 Issued by HSBC Bank Malaysia Berhad (Company No V) ("HSBC") The information in this newsletter has been obtained from reports (relevant reports) issued by HSBC Global Asset Management (GAM). HSBC Global Asset Management is a part of HSBC Group. Whilst every care has been taken in preparing and issuing this document, HSBC, GAM and the HSBC Group make no guarantee, representation or warranty and accept no responsibility or liability as to its accuracy or completeness. Some of the information in this document is derived from third party sources as specified at the relevant places where such information is set out. GAM believes such information to be reliable but it has not independently verified. All opinions and estimates constitute GAM judgment as of the date(s) of the relevant reports issued by GAM and are subject to change without notice. The information contained in this document is not directed at and is not intended for the residents of the United States, Canada or Australia. The information contained in this document has not been reviewed in the light of your personal financial circumstances. HSBC, GAM and the HSBC Group are not providing any financial or investment advice. The information is not and should not be construed as an offer or solicitation, or recommendation, to acquire or dispose of any investment and should not be considered as investment advice. Any person considering an investment should seek independent advice on the suitability or otherwise of the particular investment. Investment involves risk, value of investment may move up or down, and may become valueless. Past performance figures shown are not indicative of future performance. The relevant product offering documents should be read for further details. 16/07/2012 Investment Weekly 7