Sumanta Dey http://blogs.reuters.com/sumanta-dey Fri, 06 Nov 2015 12:30:54 +0000 en-US hourly 1 http://wordpress.org/?v=4.2.5 Reuters poll – Yuan, rupee seen to weaken only slightly as dollar rallies http://in.reuters.com/article/2015/11/06/forex-poll-asia-idINKCN0SV1EO20151106?feedType=RSS&feedName=everything&virtualBrandChannel=11709 http://blogs.reuters.com/sumanta-dey/2015/11/06/reuters-poll-yuan-rupee-seen-to-weaken-only-slightly-as-dollar-rallies/#comments Fri, 06 Nov 2015 11:25:06 +0000 http://blogs.reuters.com/sumanta-dey/?p=933 BENGALURU (Reuters) – The Chinese yuan and Indian rupee are expected to weaken over the course of the coming year, although not as much as other emerging market currencies, as expectations of higher interest rates in the U.S. boost the dollar, a Reuters poll found.

Global investors moved back into U.S. sovereign bonds and the dollar this week after Federal Reserve Chair Janet Yellen signalled the Fed’s first rate hike in almost a decade could come as soon as next month.

That news sent U.S. two-year Treasury yields to their highest levels in 4-1/2 years and also pushed the dollar higher against a basket of currencies, reversing the general trend seen last month.

While the narrowing bond yield spread between the U.S. and major emerging economies is likely to dent currencies in Latin America and Africa in a bigger way – some are set to hit record lows – the yuan and the rupee will only be slightly affected.

The poll of more than 20 foreign exchange analysts, conducted this week, showed the yuan will trade around 6.50 to the dollar in 12 months, a fall of over 2 percent from Friday’s 6.35.

Those expectations of the currency weakening have largely been constant since August, when the People’s Bank of China wrongfooted markets by devaluing the yuan by the most in 21 years to safeguard a slowing economy and boost exports.

Although Beijing has tried to reassure markets that another deliberate exchange rate cut will not follow, the consensus that the yuan will steadily drift lower, on hopes of further policy easing in China coupled with higher U.S. rates, has stuck.

“The PBOC is not independent of the central government, and has multiple targets of maintaining both price stability and high growth,” economists at Goldman Sachs wrote in a note.

“We still expect some depreciation in the yuan fix, on the back of our global forecast for a pick-up in dollar strength.”

On Friday the PBOC set the yuan mid-point at 6.3459 per dollar, down from the last close at 6.3466.

Whether the Fed hikes or not will, however, largely depend on key economic data coming out of the U.S. over the next month, starting with the payrolls report on Friday.

Economists polled by Reuters predict U.S. employers picked up hiring in October and added 180,000 jobs to the economy, after slamming the brakes over the previous two months. The unemployment rate is 5.1 percent.

The poll also showed the Indian rupee is expected to depreciate slightly to 66.00 against the dollar in six months and fall further to 66.50 in a year from Friday’s 65.78.

(Reporting by Sumanta Dey; Polling by Aaradhana Ramesh; Editing by Eric Meijer)

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Chinese yuan, Indian rupee seen to weaken only slightly as dollar rallies: Reuters poll http://www.reuters.com/article/2015/11/06/us-forex-poll-asia-idUSKCN0SV0VC20151106?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/sumanta-dey/2015/11/06/chinese-yuan-indian-rupee-seen-to-weaken-only-slightly-as-dollar-rallies-reuters-poll/#comments Fri, 06 Nov 2015 08:26:24 +0000 http://blogs.reuters.com/sumanta-dey/?p=931 BENGALURU (Reuters) – The Chinese yuan and Indian rupee are expected to weaken over the course of the coming year, although not as much as other emerging market currencies, as expectations of higher interest rates in the U.S. boost the dollar, a Reuters poll found.

Global investors moved back into U.S. sovereign bonds and the dollar this week after Federal Reserve Chair Janet Yellen signaled the Fed’s first rate hike in almost a decade could come as soon as next month.

That news sent U.S. two-year Treasury yields to their highest levels in 4-1/2 years and also pushed the dollar .DXY higher against a basket of currencies, reversing the general trend seen last month.

While the narrowing bond yield spread between the U.S. and major emerging economies is likely to dent currencies in Latin America and Africa in a bigger way – some are set to hit record lows – the yuan and the rupee will only be slightly affected. [ZAR/POLL]

The poll of more than 20 foreign exchange analysts, conducted this week, showed the yuan CNY= will trade around 6.50 to the dollar in 12 months, a fall of over 2 percent from Friday’s 6.35.

Those expectations of the currency weakening have largely been constant since August, when the People’s Bank of China wrongfooted markets by devaluing the yuan by the most in 21 years to safeguard a slowing economy and boost exports.

Although Beijing has tried to reassure markets that another deliberate exchange rate cut will not follow, the consensus that the yuan will steadily drift lower, on hopes of further policy easing in China coupled with higher U.S. rates, has stuck.

“The PBOC is not independent of the central government, and has multiple targets of maintaining both price stability and high growth,” economists at Goldman Sachs wrote in a note.

“We still expect some depreciation in the yuan fix, on the back of our global forecast for a pick-up in dollar strength.”

On Friday the PBOC set the yuan mid-point at 6.3459 per dollar, down from the last close at 6.3466.

Whether the Fed hikes or not will, however, largely depend on key economic data coming out of the U.S. over the next month, starting with the payrolls report on Friday.

Economists polled by Reuters predict U.S. employers picked up hiring in October and added 180,000 jobs to the economy, after slamming the brakes over the previous two months. The unemployment rate is 5.1 percent.

The poll also showed the Indian rupee INR= is expected to depreciate slightly to 66.00 against the dollar in six months and fall further to 66.50 in a year from Friday’s 65.78.

(Reporting by Sumanta Dey; Polling by Aaradhana Ramesh; Editing by Eric Meijer)

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Bank of Japan reruns inflation downgrade script http://blogs.reuters.com/macroscope/2015/10/30/bank-of-japan-reruns-inflation-downgrade-script/ http://blogs.reuters.com/sumanta-dey/2015/10/30/bank-of-japan-reruns-inflation-downgrade-script/#comments Fri, 30 Oct 2015 15:22:19 +0000 http://blogs.reuters.com/sumanta-dey/?p=929 BAfter over a decade-and-a-half of aggressive monetary easing through asset purchases, the Bank of Japan still has to revise down its inflation projections just about every six months, almost like clockwork.

On Friday, BOJ Governor Haruhiko Kuroda, while keeping the central bank’s massive stimulus programme at a steady pace, said inflation is now expected to hit the BOJ’s 2 percent target sometime late next year or in early 2017, not mid-2016.

Two policy setters even quibbled with how the downgrade was worded, saying it should be made clear that the inflation target would not be met at any time within the central bank’s forecast horizon out to fiscal 2017.

The BOJ also cut its already mediocre growth projections for the current fiscal year by 0.5 percentage points to 1.2 percent.

Barclays economists Kyohei Morita and Yuichiro Nagai wrote:

Such extensions (or softening) of the timeline are beginning to look routine.

We now find it much more difficult to set a calendar-based forecast for monetary policy, and will shift our attention proportionally to event risks.

The latest BOJ targets also appear too optimistic, even to private economists in Japan who are usually willing as a group to go close to the official line.

Those polled by Reuters earlier this month say inflation will clock just 1.1 percent by the end of 2016, half the BOJ’s goal. Economic growth, they say, will be a meagre 0.9 percent this fiscal year.

The BOJ launched its latest quantitative easing programme in April 2013, buying financial assets worth 60 to 70 trillion yen ($581 billion) a year, even buying Nikkei exchange-traded-funds.

In October last year, it announced it would spend 80 trillion yen a year buying bonds.

That is a massive amount of money and the total spend so far in all its easing programmes put together are equal to about 70 percent of Japan’s GDP, according to economists at Nordea.

By comparison, the U.S. Fed’s balance sheet is a quarter of its economy and the Bank of England about a fifth.

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While the substantial stimulus, expected to double the money supply, initially made stocks surge, inflation has yet to pick up for a sustained period over two-and-a-half years later.

Tokyo’s Nikkei stock market index is up 16 percent on a year ago, outpacing even Germany’s DAX. But there is no inflation.

Even a sales tax hike last year failed to boost inflation and ultimately ended up hitting consumer sentiment. The economy contracted in the April-June quarter and inflation came right back down again.

JP Infl

Kuroda has repeatedly stressed the central bank’s expansive policies coupled with Abenomics – Prime Minister Shinzo Abe’s economic revival programme – are working. 

But economy watchers are getting more and more sceptical, mainly because this is a global phenomenon that no set of central bankers appears able to control.

Inflation has been slowing in China, with practically no inflation at all in Britain or the euro zone and nothing threatening so far in the United States.

Given that disinflation trend in many of Japan’s trade partners, the chances that it will soon emerge strongly out of decades of deflation are slim.

Even after headline inflation numbers start rising again following a near-60 percent slump in oil prices since mid-2014, it will not be enough too boost inflation up to 2 percent.

Amy Yuan Zhuang, economist at Nordea, wrote in a note:

Our main argument for more easing is that the BoJ has been over-optimistic on inflation so far. Although we agree that inflation is likely to pick up in the coming months, due to disappearing base effects, it will remain below 2 percent in the coming two years.

The market has generally been sceptical on the BoJ’s inflation target as well. The BoJ has repeatedly used consumer inflation expectations as an argument that the inflation target will be met.

Following a dismal survey for August, where there were whiffs of deflation reappearing, the latest consumer confidence data from the Cabinet Office are more optimistic about a pickup in inflation, although it remains to be seen whether the improvement lasts.

The BOJ may eventually have to bite the bullet and expand its asset purchases. But Kuroda is probably waiting for the right moment, considering how little ammunition he has left not to mention the huge swathes of Japan’s government bond market the central bank now owns.

(Deepti Govind contributed to this post)

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U.S. growth probably slowed sharply in Q3…and winter is coming http://blogs.reuters.com/macroscope/2015/10/29/u-s-growth-probably-slowed-sharply-in-q3-but-winter-is-coming/ http://blogs.reuters.com/sumanta-dey/2015/10/29/u-s-growth-probably-slowed-sharply-in-q3-and-winter-is-coming/#comments Thu, 29 Oct 2015 11:21:00 +0000 http://blogs.reuters.com/sumanta-dey/?p=927 RTR4U8M1.jpgIt’s probably a good thing the Federal Reserve concluded its latest policy meeting with a strong signal of its intentions, because GDP growth data expected later on Thursday are unlikely to cement rate hike views one way or another.

Fed Chair Janet Yellen on Wednesday kept the possibility of a hike at the Dec 15-16 meeting firmly on the agenda by specifically referring to it and saying consumer spending and business investment were increasing at solid rates.

But even if third quarter annualized growth hits the 1.6 percent Reuters median, the sharp brake from 3.9 percent in the second quarter just ahead of winter could raise serious concerns about growth momentum and not just an inventory run-down.

For now, economists are expecting a modest bounce back to 2.7 percent in the current quarter followed by 2.5 percent in the first three months of next year.

The world’s largest economy has, however, become infamous in recent years for grinding nearly to a halt over winter, which is just around the corner, and that more than anything could give the Fed good reason to be cautious about a December rate rise.

A great deal of the weakness has been trouble with seasonal adjustments, and in the first quarter of this year a lot had to do with major work stoppage at West Coast ports. But there is plenty that’s still not been completely explained.

Chances are U.S. growth data for Q3 may disappoint, despite a raft of late forecast revisions this week based on better trade data.

For Thursday’s GDP reading, economists’ forecasts are in a wide range, from a low of 0.8 percent to a high of 3.2 percent.

A majority of the top forecasters are slightly more pessimistic than the wider sample. Raymond James, currently number 1 on the Reuters ranking for GDP estimates, is forecasting 1.4 percent growth in Q3.

Optimists, those who have a higher forecast or think the slowdown is only temporary, say third quarter growth will be weighed down by businesses cutting back to reduce an inventory overhang — a transient phenomenon, they reason.

They also point to the rebound in exports and a sharp narrowing in the goods trade deficit in the second quarter as a sign that the drag from trade on growth will be less than earlier thought.

But the near 50 percent predicted scaleback in inventory build in the third quarter, after increasing by more than $100 billion in each of the last two quarters, will likely slice off much more from growth than expected.

And a resumption in the dollar’s relentless march that has soared over 20 percent since June 2014, now that a December rate hike is in focus, will probably put the brakes on exports once again.

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For the Fed, a call in December on whether or not to hike rates may remain as difficult as it has been up until now.

But with growth tapering off just before winter and the holiday season, even as employers cut back on hiring, the first rate increase in a decade may be a little bit harder to justify than it was last month or earlier this year.

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ECB almost certain to ease in Dec by boosting QE, cutting deposit rate: Reuters poll http://www.reuters.com/article/2015/10/27/us-ecb-policy-poll-idUSKCN0SL22G20151027?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/sumanta-dey/2015/10/27/ecb-almost-certain-to-ease-in-dec-by-boosting-qe-cutting-deposit-rate-reuters-poll/#comments Tue, 27 Oct 2015 15:05:16 +0000 http://blogs.reuters.com/sumanta-dey/?p=923 By Sumanta Dey

(Reuters) – It is now almost certain the European Central Bank will ease monetary policy in December, increasing or extending its stimulus program and further cutting the deposit rate, a Reuters poll of economists found.

ECB President Mario Draghi last week signaled that the Governing Council would act if needed to ensure inflation rose to its target of near 2 percent from -0.1 percent in September.

Draghi’s words have firmed up expectations. The consensus from almost 60 economists in a snap poll conducted after Thursday’s meeting shows there is an 80 percent probability of the ECB easing at the next policy review on Dec. 3.

Since March, the ECB has been buying 60 billion euros a month worth of mostly sovereign bonds and currently expects to keep doing so until September 2016 to lift inflation, spark credit growth and boost the economy.

But with the stimulus program having little success so far – prices are falling, while private lending is yet to rise substantially – what new steps the ECB would take and whether they would help is unclear.

“An extension (beyond September 2016) only would be a disappointment and would have little immediate effect on monetary conditions,” said Ken Wattret, economist at BNP Paribas in London.

“We expect a stepping up of the monthly run-rate in addition to an extension. The probability of a package of measures, including a lower deposit rate, has clearly increased based on what was said at the press conference.”

A majority of economists who answered other questions said the ECB would lower the deposit rate from the current -0.20 percent to -0.30 percent, while also increasing the amount of its monthly asset purchases and extending its duration.

Cutting the deposit rate further would effectively increase the amount banks have to pay to park cash overnight with the ECB.

The median consensus is for the ECB to ramp up bond buying to 75 billion euros ($83 billion) a month, while responses on how long the ECB would extend quantitative easing ranged from December 2016 to the second half of 2019.

“The decision may also hinge upon what the U.S. Federal Reserve does. If the Fed indicates it will hike in December and thus the euro weakens, a deposit rate cut will be deemed unnecessary by the ECB,” said Elmar Voelker at LBBW.

A separate poll this month showed economists still expect the Fed to hike interest rates in December for the first time in nearly a decade, although that conviction was wavering. Markets bet the Fed will not move until well into 2016. [ECILT/US]

Prospects of a Fed rate hike have weighed on the euro, weakening it nearly 9 percent since January and helping the euro zone import some inflation. But the euro’s course over the coming year hinges closely on rates in the U.S. and the dollar.

Still, for the ECB’s stimulus to have any meaningful impact on inflation, a lot depends on factors it has little control over; higher oil prices and increased demand for credit from businesses and consumers.

Private lending in the euro zone rose just 0.6 percent in September compared with a year ago, data on Tuesday showed, while business lending climbed 0.1 percent.

($1 = 0.9042 euros)

(Polling by Kailash Batijha and Khushboo Mittal; Editing by Hugh Lawson)

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ECB to extend QE beyond September 2016, but monthly total to hold: poll http://www.reuters.com/article/2015/10/15/us-economy-poll-eurozone-idUSKCN0S91H820151015?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/sumanta-dey/2015/10/15/ecb-to-extend-qe-beyond-september-2016-but-monthly-total-to-hold-poll/#comments Thu, 15 Oct 2015 13:28:21 +0000 http://blogs.reuters.com/sumanta-dey/?p=921 By Sumanta Dey and Deepti Govind

(Reuters) – The European Central Bank will extend its stimulus program beyond September 2016, according to economists in a Reuters poll who were less decided on whether it would spend more than the current 60 billion euros a month in bond purchases.

Launched just over six months ago, the ECB’s quantitative easing program has so far done little to boost inflation, drive growth or even keep the euro low for a sustained period, the goals the central bank had hoped the stimulus would achieve.

Instead, forecasts for inflation at the end of 2015, 2016 and 2017 have either stayed constant or been downgraded in each Reuters poll since May, even as euro zone inflation slipped back below zero last month.

Official data on Friday is likely to confirm an early estimate of prices contracting 0.1 percent in September.

The latest survey of over 60 economists showed inflation would average 0.1 percent this year, rise to 1.1 percent in 2016 and further to 1.6 percent in 2017 – still much lower than the ECB’s near 2 percent target.

“The foundations are still very shaky and the economy has flipped back to outright deflation in September. We think the ECB has to do another round of QE to get the exchange rate back down and that should boost inflation,” said Florian Baier, economist at Fathom Consulting.

The median probability of the ECB extending QE stood at 70 percent from those economists who answered the question, while the likelihood of increased monthly purchases over the next six months was a still-significant 40 percent.

And the consensus from a smaller sample of economists showed the total size of the ECB’s QE program would rise to 1.52 trillion euros from the current 1.1 trillion euros target.

ECB Governing Council member Ewald Nowotny became the latest policymaker on Thursday to call for new measures to boost price growth.

A slight majority of economists in the poll seem to share that assessment. Seventeen of 31 respondents in the survey who responded to the question answered “No” when asked if the ECB was in control of euro area inflation.

A meaningful rise in inflation is contingent on a few major factors – higher oil prices, which have slumped by half over the past year, increased demand from businesses and consumers, and a weaker euro.

But oil prices are not expected to climb substantially over the coming year, while high unemployment in the euro area – two out of ten people don’t have jobs in Spain – is likely to keep a lid on consumer spending. [O/POLL]

The euro has weakened over 5 percent since January and is expected to fall some more over the coming year but its prospects hinge on the U.S. dollar, which is rallying on hopes the Federal Reserve will soon raise rates. [EUR/POLL]

When that hike will come is still unclear and while economists predict December, they are not convinced. [ECILT/US]

Among the top concerns for Fed Chair Janet Yellen, apart from weak job growth and low inflation in the U.S., is China’s economic growth, which is most recently predicted to slow to 6.8 percent in 2015 and 6.5 percent next year. [ECILT/CN]

China is a major importer of finished goods from euro zone countries, most notably Germany, and a slowdown there is likely to have significant impact on growth in the monetary bloc.

Economists predict the euro zone economy will grow 0.4 percent in each quarter until the end of next year and average 1.5 percent in 2015, followed by 1.7 percent in 2016 and 2017.

GERMANY IMPORTS ON THE RISE

In Germany, economists expect a surge in imports to surpass exports this year and next, meaning foreign trade is unlikely to make a strong contribution to growth, if any at all.

They downgraded growth forecasts for Germany by a notch to 1.7 percent this year and 1.8 percent next.

For the euro zone’s number two economy, France, forecasters broadly share government predictions, expecting 1.1 percent GDP growth in 2015, 1.4 percent in 2016 and 1.6 percent in 2017. The unemployment rate is expected to dip to 10.2 percent in 2016 from 10.3 percent this year, and fall to 10.0 percent in 2017.

Italy’s economy will recover from a three-year slump this year at a slightly faster rate than expected earlier, growing by 0.8 percent in 2015, but still lower than the government target of 0.9 percent.

Only Ireland’s and Spain’s economies are expected to grow more rapidly, at even faster rates than Germany. But the Irish economy is roughly just one-twentieth the size of Germany’s and Spain is about one-third.

(Additional reporting and polling by Khushboo Mittal and Hari Kishan in BENGALURU, Michael Nienaber in BERLIN, Brial Love and Yannin Le Guernigou in PARIS, Viviana Venturi in MILAN, Steve Scherer in ROME; Editing by Jeremy Gaunt)

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Emerging Asia FX to fall further on dollar rally, China fears http://in.reuters.com/article/2015/10/09/markets-forex-poll-asia-idINL3N1291RB20151009?feedType=RSS&feedName=everything&virtualBrandChannel=11709 http://blogs.reuters.com/sumanta-dey/2015/10/09/emerging-asia-fx-to-fall-further-on-dollar-rally-china-fears/#comments Fri, 09 Oct 2015 08:00:03 +0000 http://blogs.reuters.com/sumanta-dey/?p=919 Oct 9 (Reuters) – Emerging Asian currencies are expected to
fall further over the coming year as a regional economic
slowdown, led by China, and prospects of higher interest rates
in the U.S. propel the dollar higher, a Reuters poll showed.

Asian currencies have weathered the recent turmoil in
financial markets and the relentless dollar rally over the past
year relatively better than other emerging market assets.

While they are expected to weaken some more, the falls are
projected to be, on average, less than major currencies in Latin
America and Africa.

The poll of foreign exchange strategists showed the
Indonesian rupiah will lead losses in Asia and weaken
over 6 percent in twelve months, followed by a fall of over 5
percent in the South Korean won and a 4 percent slide in
the Chinese yuan.

Those losses, while much less than the 8 percent slide
projected for the Brazilian real, add to sharp falls in major
Asian currencies so far this year. The rupiah is down 12 percent
since January, while the won is weak by over 5 percent.

Expectations the Federal Reserve will soon hike rates in the
world’s largest economy, after it passed the chance to do so in
September, has given fresh impetus to the dollar rally, although
the timing of that first increase since 2006 is still unclear.

Minutes of the Fed’s last meeting showed policymakers
remained cautious and wanted more evidence that the economy
would stay on track. Financial markets are currently pricing in
a move in March next year, while a majority of economists still
predict it will be this December.

“Despite this delay, we expect the dollar to outperform all
major currencies, as the global slowdown and opaque foreign
exchange policy in China will continue to weigh on emerging
markets,” economists at Barclays wrote in a note.

China unexpectedly devalued the yuan in August, a move its
government said was required to make the currency more
market-oriented but an action that investors viewed as an
official acknowledgement of slower growth.

The summer rout in Chinese stocks, and the surprise
devaluation, jolted global financial markets and forced
policymakers around the world, most notably in Britain, the euro
zone and the United States, to signal a continuation of easy
monetary policies to contain the damage to markets.

While Beijing has ruled out further deliberate devaluations,
analysts predict the yuan will trade around 6.62 to a dollar in
a year’s time from 6.35 on Friday.

“Chinese authorities’ incessant and deliberate intervention
in recent days to strengthen the renminbi appears to be aimed at
inflicting pain upon renminbi shorts, and changing market
expectations of continued depreciation,” BNP Paribas FX
strategists wrote.

A Reuters poll last week showed short positions in the
Chinese yuan have fallen to its smallest since early August.

But persistent worries of a slowdown in China, which posted
7 percent growth in the second quarter, has dampened the mood
and sent bearish bets on the Malaysian ringgit and rupiah
to the largest in a month.

The ringgit is the worst performing Asian currency this
year, having fallen over 21 percent, although with a 2.8 percent
further drop, it is seen losing less compared to others over the
forecast period.

The Indian rupee, one the least affected Asian
currencies, is seen weakening in a year to 66.70 from around
64.8 on Friday, as further easing from the Reserve Bank of
India, which cut rates by a more-than-expected 50 basis points
last week, is likely to pressure the currency.

(For other stories from the poll click

(Additional reporting by Shaloo Shrivastava; polling by bureaus
across Asia; Editing by Shri Navaratnam)

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No end in sight for EM currency drop as economies flop: poll http://www.reuters.com/article/2015/10/07/us-forex-poll-emerging-idUSKCN0S11KW20151007?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/sumanta-dey/2015/10/07/no-end-in-sight-for-em-currency-drop-as-economies-flop-poll/#comments Wed, 07 Oct 2015 14:33:49 +0000 http://blogs.reuters.com/sumanta-dey/?p=915 BRASILIA/BENGALURU (Reuters) – Emerging market currencies will slide further in coming months as investors fret over a slowdown in the global economy and seek safer havens, a Reuters poll showed on Wednesday.

Forecasts for currencies including the Brazilian real, the Turkish lira and the South African rand suggested the greenback is likely to set new highs against major emerging currencies, despite the Federal Reserve’s hesitation over when to raise rates off zero.

When the Fed will eventually pull the trigger is still unclear. Markets are currently pricing in a more than 50 percent chance of a hike only by March next year, while a majority of economists still predicts it will be this December.

Still, that elusive first rate rise, when it comes, is likely to fan the dollar even higher. [EUR/POLL]

Strategists have been calling for further depreciation of emerging market currencies for months. But the extent of the drop in recent weeks has caught many by surprise.

The Brazilian real, for example, has lost 57 percent over the past year and is likely to weaken 8 percent further from its Oct. 6 close in 12-months time to 4.15 per dollar, according to the median of around 30 estimates in the survey.

Although there have been no sudden stops of capital flows as in many of the previous crises, money has steadily exited emerging economies. This year is set to be the first year of net outflows since 1988, according to a recent report by the Institute of International Finance.

With growth prospects gloomy for China and other leading emerging economies, that outlook is unlikely to change, especially against a backdrop of global financial market volatility.

“We think a sustainable emerging-market rally will remain elusive,” wrote Brown Brothers Harriman strategists, led by Win Thin, in a research note. “Indeed, the best we can probably hope for in 2016 is stabilization.”

Emerging economies are set to grow just 4 percent this year, according to the International Monetary Fund, a worryingly slow pace to accommodate for their expanding debt and help reignite sluggish global growth.

Brazil’s economy, Latin America’s largest, is set to shrink nearly 3 percent this year, dragging the entire region down.

Exchange rates have weakened so much that, in many cases as in Brazil and South Africa, they are already considered undervalued. But fears of further credit downgrades have kept potential investors at bay.

“We do not believe South Africa is on an investment grade cliff, but we do believe continual growth undershoots over the forecast horizon to 2017 would imply a serious risk that South Africa could lose investment grade on a two-year horizon,” BofAML analyst Matthew Sharratt said.

According to the median forecasts in the poll, the rand is expected to weaken 4 percent from Tuesday’s close to 14.00 in 12 months. The Turkish lira is set to weaken 7 percent, to 3.15 per dollar, while the Mexican peso is expected to buck the trend and strengthen almost 2 percent to 16.36 a dollar.

The rapid falls in exchange rates has prompted policymakers from Mexico to Indonesia to step up market intervention to protect their economies. Strategists in the poll listed Brazil, China and Switzerland as countries most likely to remain under serious pressure to intervene in currency markets.

Selling FX reserves or currency swaps have helped reduce volatility in some cases, but strategists said it will not revert the current weakening trend and may even backfire.

In the case of Mexico, for example, increased intervention could actually hurt instead of helping the peso by raising concerns over the country’s fiscal stance, said Alvise Marino, a strategist with Credit Suisse.

(Polling by Anu Bararia, Khushboo Mittal in BENGALURU, Vuyani Ndaba in JOHANNESBURG, Miguel Gutierrez in MEXICO CITY, Nelson Bocanegra in BOGOTA, Ursula Scollo in LIMA, Felipe Iturrieta in SANTIAGO; Editing by Ross Finley and Raissa Kasolowsky)

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No end in sight for EM currency drop as economies flop – Reuters poll http://uk.reuters.com/article/2015/10/07/uk-forex-poll-emerging-idUKKCN0S11PH20151007?feedType=RSS&feedName=everything&virtualBrandChannel=11708 http://blogs.reuters.com/sumanta-dey/2015/10/07/no-end-in-sight-for-em-currency-drop-as-economies-flop-reuters-poll/#comments Wed, 07 Oct 2015 14:22:55 +0000 http://blogs.reuters.com/sumanta-dey/?p=917 BRASILIA/BENGALURU (Reuters) – Emerging market currencies will slide further in coming months as investors fret over a slowdown in the global economy and seek safer havens, a Reuters poll showed on Wednesday.

Forecasts for currencies including the Brazilian real, the Turkish lira and the South African rand suggested the greenback is likely to set new highs against major emerging currencies, despite the Federal Reserve’s hesitation over when to raise rates off zero.

When the Fed will eventually pull the trigger is still unclear. Markets are currently pricing in a more than 50 percent chance of a hike only by March next year, while a majority of economists still predicts it will be this December.

Still, that elusive first rate rise, when it comes, is likely to fan the dollar even higher.

Strategists have been calling for further depreciation of emerging market currencies for months. But the extent of the drop in recent weeks has caught many by surprise.

The Brazilian real, for example, has lost 57 percent over the past year and is likely to weaken 8 percent further from its Oct. 6 close in 12-months time to 4.15 per dollar, according to the median of around 30 estimates in the survey.

Although there have been no sudden stops of capital flows as in many of the previous crises, money has steadily exited emerging economies. This year is set to be the first year of net outflows since 1988, according to a recent report by the Institute of International Finance.

With growth prospects gloomy for China and other leading emerging economies, that outlook is unlikely to change, especially against a backdrop of global financial market volatility.

“We think a sustainable emerging-market rally will remain elusive,” wrote Brown Brothers Harriman strategists, led by Win Thin, in a research note. “Indeed, the best we can probably hope for in 2016 is stabilization.”

Emerging economies are set to grow just 4 percent this year, according to the International Monetary Fund, a worryingly slow pace to accommodate for their expanding debt and help reignite sluggish global growth.

Brazil’s economy, Latin America’s largest, is set to shrink nearly 3 percent this year, dragging the entire region down.

Exchange rates have weakened so much that, in many cases as in Brazil and South Africa, they are already considered undervalued. But fears of further credit downgrades have kept potential investors at bay.

“We do not believe South Africa is on an investment grade cliff, but we do believe continual growth undershoots over the forecast horizon to 2017 would imply a serious risk that South Africa could lose investment grade on a two-year horizon,” BofAML analyst Matthew Sharratt said.

According to the median forecasts in the poll, the rand is expected to weaken 4 percent from Tuesday’s close to 14.00 in 12 months. The Turkish lira is set to weaken 7 percent, to 3.15 per dollar, while the Mexican peso is expected to buck the trend and strengthen almost 2 percent to 16.36 a dollar.

The rapid falls in exchange rates has prompted policymakers from Mexico to Indonesia to step up market intervention to protect their economies. Strategists in the poll listed Brazil, China and Switzerland as countries most likely to remain under serious pressure to intervene in currency markets.

Selling FX reserves or currency swaps have helped reduce volatility in some cases, but strategists said it will not revert the current weakening trend and may even backfire.

In the case of Mexico, for example, increased intervention could actually hurt instead of helping the peso by raising concerns over the country’s fiscal stance, said Alvise Marino, a strategist with Credit Suisse.

(Polling by Anu Bararia, Khushboo Mittal in BENGALURU, Vuyani Ndaba in JOHANNESBURG, Miguel Gutierrez in MEXICO CITY, Nelson Bocanegra in BOGOTA, Ursula Scollo in LIMA, Felipe Iturrieta in SANTIAGO; Editing by Ross Finley and Raissa Kasolowsky)

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Euro zone September business growth at four-month low: PMI http://www.reuters.com/article/2015/10/05/us-eurozone-economy-pmi-idUSKCN0RZ0ZP20151005?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/sumanta-dey/2015/10/05/euro-zone-september-business-growth-at-four-month-low-pmi/#comments Mon, 05 Oct 2015 10:42:02 +0000 http://blogs.reuters.com/sumanta-dey/?p=911 LONDON (Reuters) – Euro zone business activity grew at its weakest pace in four months during September but in one encouraging sign for the European Central Bank, service firms raised prices for the first time in four years, surveys showed on Monday.

The data point to modest third-quarter growth of 0.4 percent, survey compiler Markit said, and are likely to largely disappoint policymakers, six months into the ECB’s 60 billion euros ($68 billion) a month quantitative easing program.

Britain’s economy, which has been outpacing the euro zone’s, is also losing steam, with service industry growth at a 2-1/2-year low, likely rattling the Bank of England as its Monetary Policy Committee meets to discuss interest rates this week.

“The euro area is broadly as expected. For the region overall we are seeing the economy ticking along at a reasonable pace, it’s not blistering,” said Sarah Hewin, chief economist for Europe at Standard Chartered.

“Of the two sets of releases the surprise has come from the UK. It is something of a concern going into the fourth quarter.”

Markit’s final September Composite Purchasing Managers’ Index (PMI) for the euro zone came in at a four-month low of 53.6, weaker than an earlier estimate of 53.9.

In August, it was 54.3 but has now been above the 50 mark denoting expansion since July 2013 and there were tepid signs of inflationary pressure.

However, new orders rose at a much slower pace than first reported and fewer new jobs were created, suggesting firms were growing increasingly downbeat.

The PMI for the dominant service industry dipped as well, settling at 53.7 from August’s 54.4 and lower than a flash estimate of 54.0. A similar survey of manufacturing firms released on Thursday had also fallen, to 52.0 from 52.3.

An earlier composite PMI from Germany, Europe’s biggest economy, fell as did those out of Italy and Spain. France’s composite reading bucked that trend and rose, pointing to 0.2 percent growth in the third quarter, according to Markit.

Euro zone retail sales were unchanged in August from July, slightly better than the 0.1 percent decline expected by economists in a Reuters poll. reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=EURSL%3DECI

Britain’s headline services PMI dropped to 53.3 in September from August’s 55.6, its lowest since April 2013 and well below any forecast in a Reuters poll of economists. The expectations component was its lowest since August 2014.

“This is undeniably a disappointing survey all round that can only fuel concern over the UK economy’s current soft patch, especially given the services sector’s dominant role,” said Howard Archer at IHS Global Insight.

“It is hard to take any positives from this report and it will certainly fuel expectations that the Bank of England will not be hiking interest rates until well into 2016.”

The BoE is still expected to raise interest rates from a record low 0.5 percent early next year but that prediction now rests on a knife’s edge after the U.S. Federal Reserve delayed its first hike, a Reuters poll found last week. [BOE/INT]

While economists have been focusing on how soon the Fed and BoE begin tightening their ultra-loose monetary policy there have been increasing expectations ECB officials will go the other way and loosen policy further.

Several ECB policymakers, led by President Mario Draghi, have publicly hinted the trillion-euro stimulus program could be increased or extended if inflation is seen failing to rise toward the central bank’s near 2 percent target.

A Reuters poll last month predicted the ECB would officially extend its asset purchase program beyond September 2016 in yet another attempt to drive up inflation and rekindle growth and those calls probably grew louder after official data showed euro zone inflation slipped below zero again in September.

Offering a glimpse of reassurance for officials trying to generate inflation, the euro zone service sector PMI showed firms charged higher prices last month for the first time since August 2011.

(Editing by Catherine Evans/Ruth Pitchford)

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