The financial markets open mixed this week with dollar paring some of last week's loss but stays weak. Asian equities are trading slightly lower at the tie of writing with Nikkei down -103.46 pts or 0.61%. There is some disappointment over China's revision of growth target. The Chinese government released its latest economic target for 2016 at the National People's congress (NPC) meeting on Saturday. Real GDP growth is targeted 6.5%-7.0% while CPI at around 3%. Broad money supply M2 is target to grow 13% this year. The government aims at a fiscal deficit of 3% of GDP this year, up from 2.4% in 2015, and suggested that monetary policy would be prudent but "with flexibility". Premier Li Keqiang admitted that "China will face more and tougher problems and challenges in its development this year". He noted that China would "focus on current realities and take targeted steps to withstand downward pressure on the economy". Meanwhile, it would "keep some policy tools as options for later use, strategized moves and gather strength". on a separate note, PBOC deputy governor Yi Gang, trying to assure the market that the government remains capable of preventing sharp depreciation of renminbi, noted that only highly liquid assets are included in the FX reserves data.
In Japan, BoJ governor Haruhiko Kuroda said today that "the decline in yen interest rates and the fact that further monetary easing is possible - all else being equal - have a positive impact on asset prices." And, "at the moment, these effects are being outweighed by excessive risk aversion among investors around the globe." But he also noted that "Now is the time to carefully scrutinize how the effect (of the negative rate policy) will spread to the economy." This suggested that the central bank won't expand easing again in near term.
Dollar would likely stay weak in near term as the mixed job report released last Friday, with negative wage growth, add to cases for Fed to delay the next rate hike. Markets are currently pricing in around 50% chance of a hike by the end of the year. Nonetheless, according to a survey by the National Association of Business Economics, the majority respondents still expected a hike this year. 24% of respondents expected one hike, 39% expected two and 16% expected three.
One the data front, Japan leading index dropped to 101.4 in January. The economic calendar is relatively light today. Germany will release factory orders. Eurozone will release Sentix investor confidence. Swiss will released foreign currency reserves. US will release labor market conditions index.
Looking ahead, the focus is undeniably ECB meeting on Thursday. We expect the central bank to announce a number of stimulus measures, including further reduction in deposit rates, new TLTRO auctions until the end of 2017 and expansion of the monthly asset purchases by, say EUR 10b. Elsewhere, the market currently expects the RBNZ to keep its OCR unchanged at 2.5% at the meeting held Thursday (NZ Time). BOC is also expected to keep its powder in this Wednesday meeting. Here are some highlights for the week.
- Tuesday: Japan GDP final, consumer confidence; China trade balance; Australia NAB business confidence; Swiss unemployment, CPI; German industrial production, Eurozone GDP revision; Canada housing starts
- Wednesday: Australia home loans, Westpac consumer sentiment; UK industrial and manufacturing production; BoC rate decision; US wholesale inventories
- Thursday: RBNZ rate decision; Japan PPI; China CPI, PPI; German trade balance, ECB rate decision; Canada new housing price index;
- Friday: Japan BSI manufacturing index; UK trade balance; Canada employment, US import price