the world overall 04:12 - week in review

The World Overall One Financial | Andrei Wogen| finance.wogen@gmail.com|For the Week of: 04/12

Last Week in ReviewAUD The Australian central bank (RBA) left rates on hold which was against a majority of expectations though the call on the decision was split overall. The RBAs accompanying statement highlighted that overall growth will likely remind below trend for a while yet and that inflation will remain within their target range. They also continued to highlight that the a weaker Aussie Dollar is needed to help the economy and that its likely path is lower and they continued to highlight strong a strong housing market in the Sydney region in particular. On the bright side of things though, the Bank did say that business lending is picking up. This is a good sign but Capex levels continue to be subdued and fall overall which therefore paints a different story of the business community than does the lending data. Something to keep watch of though. If this increase in lending activity to the business community sustains itself this could mean that a rise in Capex spending is coming and that would be bullish for the AUD and for the Australian economy as a whole which would cause rate cut expectations from the RBA to be pushed back or even removed altogether. Overall though the statement was pretty much the same thing we saw at last months meeting.

USD The main message form the FOMC Meeting Minutes released lsat week is that the members are having a difficult time pinning down a date for when to raise rates for the first time in nearly a decade. Some think June is a good time, others say wait till later (September in particular) and others are saying wait till next year sometime. On the whole though, the members of the FOMC seem to be unsure of when the next step should be taken. This is not so surprising though given the current low inflation, some weakness in growth that has been seen recently in the US and international developments which are causing the US Dollar to rise quite a bit and is becoming more of a worry for everyone. When the FOMC does decide to raise rates is anyones guess but I still hold to my expectation that they will wait till next year, regardless of the major problems that are being created with these low rates still being present for as long as they have been. Something which the

JPY The BoJ left rates and their QE program steady as expected during their meeting last week. In the statement there was continued optimism on the Japanese economy being shown from the BoJ. The Bank even commented on the fact that they see that business sentiment is continuing to stay strong. An interesting comment given the recent Tankan business sentiment surveys which showed overall weakness especially in the future expectations part of the survey. The other interesting part of the statement from the BoJ last week was the mention that one member dissented and suggested that QE be tapered back. This could be our first sign of disarray and disagreement taking form within

AUD/USD, Daily Chart Continues to range but bias continues to be short

overall

the BoJ as Gov. Kuroda continues to stick with wanting to ease further while other members seem to be pulling away from supporting that direction in policy. On the whole though, the BoJ continues to stay on hold with their policy and so with no further easing at this point that is a bit bullish but I use the word bullish very loosely. I still expect, as does most of the market, that the BoJ will be forced to ease further sometime this year. When is the question. At the end of this month though could be the opportune time for the Bank to ease further as they are having a one day meeting on April 30th where they will issue new long-term forecasts for the economy and inflation. These forecasts I expect to be lower than previous and because of that I expect we will see more easing down the road and likely sooner than later.

INR The Indian central bank, the RBI, maintained their key interest rate at 7.5% after a pretty active year so far for the Bank. They have cut rates by 50bps this year so far during two unexpected times this year so far. The Bank wants to see how the Indian economy plays out more before they move again on policy again, saying that their next move in their policy will be determined by the data. They also outlined several scenarios that if they happened would impact their future policy easing including transmission of their rate reductions seen so far this year by commercial banks to their lending rates, changes in food prices and any threat to the disinflation that is underway, an acceleration of policy efforts to unclog the supply chain so power and land can be made available reducing the pipeline of stalled investment projects and moves by the US Fed to normalize its policy stance. So a host of things to watch for when anticipating what the RBI could do next and when.

KRW The Bank of Korea maintained their main interest rate last week at 1.75% while sounding a bit more optimistic on the domestic economy than was seen in their previous statement. Overall, they are seeing domestic demand especially in terms of consumption and investment. Exports though continue their decline overall. As for the negative parts of their statement, they continue to see the negative output gap persisting for longer than had been anticipated and that inflation will remain low for a while yet, mainly due to low oil prices. They also continue to keep an eye on what they consider to be external risks which include oil prices, shifts in major countries monetary policies (the US in particular) and spare capacity which continues in the Korean economy along with a continued worrying trend higher in household debt. On the whole though, this statement did have a tad bit better tone than last meeting but there are still problems that remain and if the Fed does indeed raise rates soon and as I expect China to continue to decline both of these things will be a couple of the main drivers of weakness going forward for South Korea and so lower rates are most likely in the countrys future.

CNY Though inflation came in better than expected overall last week, it was still a dismal number. Month-to-month fell into negative territory while year-over-year printed the same as Februarys reading. PPI numbers also continued to print in negative territory. On the whole though inflation and prices in general in China continue to remain weak, prompting more calls and expectations for easing from the PBoC and government.

CAD Employment data came in much better than expected showing some improvement in an otherwise dismal economic picture for Canada. However, this data does tend to be volatile. Still, an

encouraging sign overall. What the BoC does with this info though will probably be limited at this point. They seem to be fine with being on hold and seeing how things play out more in the Canadian economy before they move again on rates, if they do.

What to Watch this WeekCNY this weeks first quarter GDP number (on Tuesday night) will be a key data release for not only the Chinese market but also the international markets. Expectations are for slower growth than the previous quarter and compared to the first quarter of last year. Not a huge surprise there on the weaker expectations but if growth comes in better or worse than expected will be key. Weaker growth numbers will increase expectations of more easing coming from the PBoC even though expectations of easing have increased over the past few weeks in particular. However, the question then becomes, if growth is indeed weaker than initially expected, will the PBoC and/or Chinese government actually do something about it. The tone we are getting from them right now is kinda mixed right now in my opinion and so if we get any sort of stimulus is still very much up in the air in my opinion. Also, as a note, depending on the China growth numbers, the result of this data will very likely raise or lower expectations for more rate cuts by the Australian central bank as Australias economic health and activity is tied quite a bit to how China performs. Other data of interest from China this week will be Industrial Production, Retail Sales and House price data.

USD The main data this week will be inflation data on Friday. Inflation in the US has been mixed but weaker overall. Headline inflation, including oil and not surprisingly, is at zero. Core inflation has also moved lower over the past few months but not as fast or as violent as headline has. In this respect then, if core weakens further that will be the key in the market expectations for rate hikes from the Fed. Any lower in core prices and rate hike expectations will be pushed back. The other main data this week will be a reading on the consumer as Retail Sales data will be released on Tuesday. The US Consumer has been weak in their spending habits as of late opting instead to save more than spend their money. A key to the US economy going forward and what will help the economy to improve and grow sustainable will be a healthy consumer and one that spends more than saves. So far this has yet to happen though.

EUR the main data this week will be CPI data for March; the preliminary reading. Inflation continues to be weak overall but there have been some encouraging signs as of late as some countries have shown an uptick in recent inflation data. However it will take a few months to reverse the overall trend and expectations that the market has for inflation. The other event to continue to watch is the situation in Greece. After last weeks payment to the IMF, the next hurdle for Greece are two more payments that are due in May. One to the IMF and one for mentions and salaries. The bad part is that, according to the reports coming out of Greece right now, the government will likely run out of money by the end of this month. If they do this will very likely be the end of Greeces involvement in the Euro Zone as we know it as a

Dollar Index, Daily Chart

depletion of money would mean that the government would have to print the Drachma. However the fact that Greece was able to raise the money via a bond sale last week was encouraging even if most of those bonds were bought by Greek banks. The other player to watch in all of this though is the ECB. Last week they raised the ELA limit for Greek banks yet again but how long this grace will last from the ECB is the real question. Whether or not the ECB continues to fund the Greek banks is even more crucial now as the Greek banks seem to be buying up whatever debt the Greek government sells, effectively helping Greece stay afloat for a little longer. So in essence, the way I see it is that if the ECB does not raise the ELA again and fund Greek banks, that could very well be the signal of the end for Greece in the Euro Zone.

CAD Inflation data this week will be the key data from Canada. Inflation has been weaker for the headline data but core continues to remain strong. A change in the core then, like the US core inflation, will be the key data then to watch for in terms of expectations on what the BoC could likely do next or not do. The BoC continues to be in a dovish stance but an on-hold dovish stance as they want to see how their rate cut that they implemented a few weeks ago, effect the Canadian economy. Speaking of the BoC.the big event this week will be the BoC policy rate meeting on Wednesday. Expectations are for no change in rates but the Bank has surprised us before. However in my opinion I think the Bank will continue to hold off on any change in policy. At least for now though as overall economic conditions continue to weaken in Canada they will likely cut again but just might take them awhile to do so again. Maybe. The key release could come from the BoCs release of their monetary policy report which will be their assessment of the economic conditions of Canada.

GBP Key data this week will be employment and wage data and final CPI data throughout the week. Wages and inflation both continue to be a focus of the markets as expectations for a BoE rate hike continue to be pushed back. The other news item that is gaining interest in the markets are the upcoming UK elections. To say the race is a tight one is an understatement but one thing is clear, the current UK government will be shaken up by these elections and will more than likely be divided more than it currently is after the elections next month. The markets though are starting to take notice and so the Pound and UK markets sensitivity to the UK elections, including any polls (which seem to come out once a day at the minimum) I expect will continue to increase leading up to the elections.

AUD Employment data this week will be key. As the market continues to try and anticipate what the RBAs next move is, after last weeks decision to hold rates, employment data will be one of the key pieces of data that the RBA will be watching. With the RBA continuing to expect weaker growth, this ties into lower employment as well so any improvement in the employment sector will be important.

Overall Sentiment IndicatorAsset Overall Sentiment Rating

US Dollar Positive 3

Euro Negative 4

Pound Negative 4

Canada Dollar Negative 2

Australian Dollar Negative 3

Japanese Yen Negative 4

New Zealand Dollar Negative 1

Economic Calendar Region Event/Data Expected Date Time (EST)

Japan BoJ Monetary Policy Meeting Minutes 04/12 7:50pm

China Trade Balance $45.35B 04/12 10:00pm

United States Retail Sales m/m 1.1% 04/14 8:30am

United States Core Retail Sales m/m 0.7% 04/14 8:30am

China GDP q/q (Q1) 1.4% 04/14 10pm

China GDP y/y (Q1) 7% 04/14 10pm

Japan BoJ Gov. Kuroda Speech 04/15 2:15am

Euro Zone ECB Interest Rate Decision 0.05% 04/15 7:45am

Euro Zone ECB Press Conference 04/15 8:30am

Canada BoC Rate Statement and Decision 0;75% 04/15 10am

Canada BoC Press Conference 04/15 10am

Canada BoC Monetary Policy Report 04/15 11am

Australia Employment Change 14.7K 04/15 9:30pm

Australia Participation Rate 04/15 9:30pm

Australia Unemployment Rate 6.3% 04/15 9:30pm

Euro Zone CPI y/y -0.1% 04/16 5am

Euro Zone Core CPI y/y 0.6% 04/16 5am

United Kingdom ILO Unemployment Rate 5.6% 04/16 5:30am

United Kingdom Claimant Count Change -29K 04/16 5:30am

United States Core CPI y/y 1.7% 04/16 8:30am

United States CPI y/y 0.1% 04/16 8:30am

Canada BoC Core CPI y/y 2% 04/16 8:30am

Canada CPI y/y 1% 04/16 8:30am

Euro Zone IMF Meeting 04/16 All Day