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Date: 11 August 2010
Author: Alvin Liew, Anubhuti Sahay, Brandon Loe, Callum Henderson
Region: Americas, China, India, Middle East & North Africa, North East Asia, Europe
Categories: Foreign Exchange, Economics
• Market price action suggests limited boost to risk appetite from Fed’s latest action
• Standard Chartered Risk Appetite Index is on the verge of returning to risk aversion zone
• Risk aversion and/or upside surprises in inflation could prompt a spike in IDR bond yields
• India’s production data release today could reveal more downside risks for global growth
• We expect Chile to hike rates by 50bps to 2.00% with more to come
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Date: 11 August 2010
Author: Alvin Liew, Anubhuti Sahay, Brandon Loe, Danny Suwanapruti
Region: Americas, China, India, Middle East & North Africa, North East Asia, Europe
Categories: Economics
• Market price action suggests limited boost to risk appetite from Fed’s latest action
• Standard Chartered Risk Appetite Index is on the verge of returning to risk aversion zone
• Risk aversion and/or upside surprises in inflation could prompt a spike in IDR bond yields
• India’s production data release today could reveal more downside risks for global growth
• We expect Chile to hike rates by 50bps to 2.00% with more to come
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Date: 6 July 2010
Author: Abah Ofon, Alex Sienaert, Anubhuti Sahay, Callum Henderson
Region: Global Overview
Categories: Economics
• With confidence such a key factor in a recovery, any sign that the world economy is losing momentum may become self-fulfilling, dampening consumption and deterring investment.
• Although a ‘double-dip’ recession is far from inevitable, the risk has increased of late. Premature policy tightening is one key factor that could trigger such a double-dip. The recent G20 meetings, where leaders spoke globally but acted nationally, reinforced this worry.
• The implications are two-fold. First, monetary conditions in the West need to stay accommodative. Second, as fiscal policy is tightened, global demand needs to come from somewhere. Our bet is on the emerging world.
• In contrast to the West, the policy cupboard across the emerging world is far from bare, although inflation could be a worry for some. China is key. Much like the rest of Asia, China is expected to slow in H2-2010, but not to collapse. Challenges remain, prompting Asian economies to put more emphasis on domestic economic balances and regional integration.
• Commodities, we believe, have already priced in much of the downside stemming from a slowing China. Volatility will continue and a still-weak euro could create further headwinds, but the continuing flow of funds into commodity markets on a longer-term structural basis remains a positive.
• We are constructive on the credit markets longer-term, in particular the Asian and Middle Eastern markets. While we remain cautious in the near term due to still-poor risk appetite and liquidity, we view the current market consolidation as a long-overdue correction.
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Date: 24 June 2010
Author: Brandon Loe, Douglas Smith, Edward Lee Wee Kok, Gerard Lyons
Region: Africa, Global Overview, China, Americas, Middle East & North Africa, South East Asia, Europe
Categories: Fixed Income, Foreign Exchange, Economics
• The impact of CNY appreciation varies across Asia
• We expect limited inflationary pressure on Asian economies as a result of CNY appreciation
• We initiated a sell USD-TWD recommendation in SCB FX Trading Portfolio after the PBoC announcement
• A tough UK budget for a tough fiscal position
• Positive for UK credit and, combined with low rates, should be supportive for gilts
• We see USD-TWD at 30.80 in mid-2011, versus a 1Y NDF of 31.07 and 1Y onshore forward of 31.83
• QAR and AED 12M forwards offer positive carry over SAR 12M forwards, with limited risk if held until maturity
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Date: 1 June 2010
Author: Marios Maratheftis, Shady Shaher
Region: Middle East & North Africa
Categories: Economics
• UAE economy grew by 1.3% in real terms in 2009, but contracted by 2.1% nominally
• Private consumption growth is surprising given weak credit growth, falling imports and negative wealth effect
• We expect GDP growth to rebound to 3.0% in 2010
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Date: 24 May 2010
Author: Marios Maratheftis
Region: Middle East & North Africa
Categories: Economics
• The EU has been developing Europe-wide institutions for more than 40 years
• Nevertheless, institutional limitations within the EU are leading to justified market concerns
• The GCC still lacks the necessary supranational institutions for a common currency
• But the divergence between Saudi and UAE forwards offers positive carry opportunities
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Date: 4 May 2010
Author: Abah Ofon, Alvin Liew, Anubhuti Sahay, Dan Smith
Region: Global Overview
Categories: Economics
• The EUR 110bn EU/IMF bailout package should prevent Greece from a default and keep it in the euro area, but it will also keep Greece in a debt trap and force its economy to deflate. But then, there was never going to be an easy way out for Greece.
• In terms of the euro, none of this should come as a surprise. Not all of the countries currently in the euro area should be in it. The euro system is not sustainable in its present form.
• The basic problem with the euro is that one interest rate does not fit all. Monetary union requires labour mobility and fiscal flexibility in the form of a single Treasury. The euro is at a crossroads, and its long-term survival depends on a political union within the euro area.
• Sovereign debt problems in Europe will reinforce the focus on both safe havens and growth recovery stories. Markets will look to low debt, high growth and stable economies, mostly in Asia.
• The bailout of Greece should support the EUR as well as AXJ currencies in H2, but given relatively tight credit spreads in Asia, the upside for Asian credits may be limited in the near term.
• European woes, an accommodative Fed stance and capital inflows have kept Asian rates generally lower, but Asian market rates are likely to move higher, albeit gradually.
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Date: 28 April 2010
Author: Marios Maratheftis, Philippe Dauba-Pantanacce
Region: Middle East & North Africa
Categories: Economics
• Inflation in the GCC is driven by housing costs, ample liquidity and food prices
• Inflation is likely to be subdued across most of the GCC in 2010
• Saudi Arabia faces more persistent inflationary pressures than its GCC peers
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Date: 8 April 2010
Author: Abah Ofon, Alex Barrett, Anubhuti Sahay, Callum Henderson
Region: Global Overview
Categories: Economics
• A huge fundamental change is underway in the global economy. The shift in the balance of economic power from the West to the East will last for decades.
• There will be winners and losers in this shift. The winners will be those with financial, natural or human resources, or one or more of the three Cs: cash, commodities or creativity.
• Creativity may be the most powerful of all the resources to be rich in. With vast numbers of people entering the workforce, huge improvements in productivity, and continued globalisation, the rewards for innovation and creativity will become even greater.
• The three Cs are shaping the New World Order, as well as the path of the current recovery. For example, China’s cash has allowed it to inflate its demand and raised Asia’s exports back to pre-crisis levels, despite an uncertain outlook clouded by weak G3 demand and growing protectionism.
• In Africa, the rebound in commodity prices and a growing share of trade with emerging markets have also supported the trade recovery.
• Strong fundamentals and flush liquidity are supporting Asian credits and currencies, especially as USD strength peaks in light of Europe’s improving situation, rising risk appetite and shifting interest rate expectations.
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Date: 2 March 2010
Author: Alvin Liew, David Semmens, Delphine Arrighi, Douglas Smith
Region: Global Overview
Categories: Economics
• The Fed is exiting gradually, but it is a move to normalise, not to tighten.
• While the same is true for most developing Asian governments, exits in the West are different from exits in the East.
• While the West is still busy fixing its financial and fiscal problems, the East is moving to improve its long-term growth.
• Specifically, the Fed will have to focus on underlying demand and prevent a premature exit.
• In Europe, a stronger political union is needed to support the monetary union and resolve the fiscal problems of euro members. For Greece, default or departure from the euro are not options.
• In Asia, China needs to tighten and may run into trouble, but it has sufficient tools to manage.
• Asia’s small, open economies face relatively higher risks as they exit given the still-uneven recovery and buoyant liquidity conditions.
• As market players try to time the change in policy, volatility may rise, but downside risk to rates appears limited.
• We expect positive fund flows to support higher commodity prices, especially those with tight supply and strong Asian demand.
• We expect the euro to recover in Q2 on political dynamics, the CNY to ‘de-peg’ in late Q2/Q3, and the INR and KRW to outperform within AXJ.