1、 Global FX 20 Dec 2010 2010 has been an eventful year for currency investors. Unlike 2009 which saw mostly dollar weakness, last year was a year of two halves. In the first half, the dollar rallied some 14% against a basket of major currencies mainly due to risk aversion flows. Europes sovereign deb
2、t crisis came to the fore as Greece had to seek external financial assistance and some of the smaller eurozone countries faced rating downgrades and escalating borrowing costs. Widespread concern about Europes public finances and the health of its banking sector all worked to undermine euro sentimen
3、t, sending it to a four-year low of 1.1877 on June 7th, some 17% below its level at the start of the year. The EU and the IMF had to extend help to Greece and set up a EUR750 billion emergency funding facilities to help euro area countries in need. Investor focus shifted to the other side of the Atl
4、antic in mid year as US economic recovery started to slow, leading to expectations that the Fed would further ease monetary policy. Such expectations led to widespread selling of the dollar, erasing all of its gains recorded since the start of the year. The euro climbed back to trade at around 1.428
5、0 against the greenback in early November, some 30% compared with its year low of 1.1877 in June. The same trends could repeat themselves in 2011. The dollar could strengthen again, as it started to do in the past month, as eurozones debt crisis re-surfaced. Investors also expect faster growth in th
6、e US as a result of the Feds easing measures and President Obamas tax extension plans. However, the dollar uptrend could be reversed in the second half as fear of rising budget deficits and federal debts in the US could again cast a shadow over the long term value of the US currency. 2010Q4F 2011Q1F
7、 2011Q2F 2011Q3F 2011Q4F EUR/USD 1.35 1.35 1.35 1.40 1.45 USD/JPY 85.00 85.00 85.00 90.00 90.00 GBP/USD 1.58 1.58 1.58 1.62 1.65 AUD/USD 0.97 0.98 0.98 1.00 1.02 NZD/USD 0.76 0.76 0.76 0.78 0.80 USD/CAD 1.00 1.00 1.00 0.98 0.98 USD/CNY 6.60 6.50 6.40 6.35 6.25 Notes: End of period figures; F denotes
8、 forecast Sources: Bloomberg L.P, Hang Seng Bank 2Interest Rates 20 Dec 2010 Policymakers on both sides of the Atlantic appear to be taking a very different stance to tackle the sluggish economic recovery. In terms of monetary policy, the US Federal Reserve is going further down the road of unconven
9、tional strategies. The Feds balance sheet, at over USD2 trillion, is already sizable after its first round of quantitative easing which ended in March 2010 (QE1). It decided at the November 3 policy meeting to further expand its asset purchase programme by an USD600 billion (QE2) in an attempt to lo
10、wer long term borrowing costs and boost economic growth. Such action reinforced expectations that US interest rates would stay low for a longer period. We therefore expect the Fed to leave its overnight benchmark rate at a range of zero to 0.25% throughout 2011. In contrast, its European counterpart
11、s seem to be more hesitant in using such unconventional policies for fear of their longer term impact on inflation. The Bank of England has been keeping the size of its asset purchase programme unchanged at GBP200 billion since November 2009. Similarly, while the European Central Bank has decided to
12、 extend the emergency liquidity facility for European banks until the end of the first quarter of 2011, it has resisted pressure to further expand its covered bond purchase programme despite increasing concern about the eurozones sovereign debt crisis. In terms of fiscal policy, the divergence is ev
13、en more obvious. The Obama administration opts to extend Bush-era tax cuts for two more years, which could help boost growth in short term, but many fear that it would further add to the already sizable US budget deficit and would increase the cost of borrowing as well as inflation down the road. In
14、 contrast, European governments are undergoing fiscal consolidation, for some such as Greece and Ireland, in exchange for external financial assistance. Which way is better? Only time could tell. (%) 2010Q4F 2011Q1F 2011Q2F 2011Q3F 2011Q4F US Fed Funds Target Rate 0 - 0.25 0 - 0.25 0 - 0.25 0 - 0.25
15、 0 - 0.25 Japanese Target Rate 0 - 0.10 0 - 0.10 0 - 0.10 0 - 0.10 0 - 0.10 Euro Refinancing Rate 1.00 1.00 1.00 1.00 1.00 British Repo Rate 0.50 0.50 0.50 0.50 0.50 Australian Cash Rate 4.75 5.00 5.00 5.00 5.00 New Zealand Cash Rate 3.00 3.25 3.25 3.50 3.50 Canadian Bank Rate 1.00 1.00 1.00 1.25 1.
16、50 Notes: End of period figures; F denotes forecast Sources: Central Bank Data, Bloomberg L.P., Reuters, Hang Seng Bank 3US Economy 20 Dec 2010 % The US economy emerged from recession in July 2009 and is estimated to expand by about 2.7% in 2010 on the back of government stimulus and monetary easing
17、 by the US Federal Reserve. However, unemployment remains at relatively high levels of close to 10% as American employers are still hesitant to hire workers due to the uncertain outlook. Moreover, as the effects of stimulus measures fade, the US economy is again losing momentum. To support the econo
18、mic recovery, the Fed decided at the November 3 meeting to launch a second round of quantitative easing measures, the so-called QE2. The US central bank will purchase an additional USD600 billion of longer term Treasury securities in an attempt to lower longer term borrowing costs and hopefully, to
19、encourage borrowing and in turn, lead to faster consumption and investment growth. During the past year or so, the Fed has already purchased over USD1.7 trillion of asset backed securities, agency debts and Treasury securities. Despite growing criticisms from the Republican Party and leaders in the
20、emerging economies, Fed Chairman Ben Bernanke said that he was prepared to launch QE3 and so on if the US economy showed no improvement. The Obama administration too, is aiming to further expand fiscal policy to stimulate growth. President Obama has reached a compromise with the Republican party to
21、extend Bush era tax cuts for two more years, that is, until December 2012, in exchange for extending the Federal unemployment benefits. While these measures could help boost growth in the short term, many fear that they might also lead to larger budget deficits and further build up of federal debts.
22、 In sum, the expansionary fiscal and monetary policy being pursued by the US administration and the Fed should help support US economic growth, to above 3% in 2011. However, the lack of fiscal and monetary discipline could also have adverse longer term consequences, such as dollar weakness, inflatio
23、n and rising budget deficits and debts. 4Euro Zone Economy 20 Dec 2010 Eurozone Industrial New Orders and ProductionIndustrial production excluding construction, YoY %Industrial new orders for total manufacturing working on orders, YoY %Sources: Reuters EcoWin, Hang Seng Bank00 01 02 03 04 05 06 07
24、08 09 10%-40-30-20-100102030%-40-30-20-100102030Eurozone Trade PerformanceExports, Annual ChangeImports, Annual ChangeTrade Balance, Seasonally-adjustedSource: Reuters EcoWin, Hang Seng Bank00 01 02 03 04 05 06 07 08 09 10EUR (billions)-12.5-5.02.510.0EUR (billions)-12.5-5.02.510.0%-30-20-1001020304
25、050%-30-20-1001020304050Eurozone Consumer Price InflationConsumer price index, YoY %Consumer price index excluding energy, food, alcohol and tobacco, YoY %Source: Reuters EcoWin, Hang Seng Bank00 01 02 03 04 05 06 07 08 09 10%-1.0-0.50.00.51.01.52.02.53.03.54.0%-1.0-0.50.00.51.01.52.02.53.03.54.0 Th
26、e rebound of the overall eurozone economy has been sluggish, with GDP expected to grow by about 1.7% in 2010. The outlook for next year is even more negative as governments cut spending and raise taxes in an attempt to restore fiscal discipline as well as investor confidence. Among the eurozone memb
27、ers, Germany, the biggest economy within the zone, is likely to remain a main engine of growth. The German economy is forecast to grow at a rapid rate of 3.5% in 2010, supported by strong exports and a rebound in domestic demand as the labour market has been improving, with unemployment rate falling
28、 to an 18-year low of 7.5%. It would be difficult, however, for Germany to sustain such a rapid growth pace as many European economies will be slashing spending and raising taxes, reducing demand for its exports. The eurozone as a whole is expected to grow by about 1.3% in 2011, after an estimated p
29、ace of 1.6% this year. Peripheral concerns would remain acute, despite the fact that Irelands request for financial assistance has been accepted. The EU/IMF would provide an EUR85 billion package to the country, but based on conditions that Ireland would adopt austerity measures to reduce its budget
30、 deficits. Investors remain fearful that Greece and Ireland will not be the last to seek external financial assistance. Other potential candidates include Portugal and even Spain, might need help. If the latter does seek help, the EUR750 billion facility set up by the EU leaders would be inadequate
31、as Spain is the eurozones fourth largest economy. Some longer term strategies are urgently needed if the eurozone is to resolve the debt crisis. A decade after its set up, the euro area is now at a crossroads. With the sovereign debt crisis spreading from the peripheral countries to bigger members s
32、uch as Spain, eurozone leaders might be forced to decide whether they want a stronger union or contemplate the unthinkable, by allowing some to leave the zone. 5UK Economy 20 Dec 2010 UK Unemployment E Estimates F - Forecasts US Dollar Forecast Update 2010Q4F 2011Q1F 2011Q2F 2011Q3F 2011Q4F EUR/USD
33、1.35 1.35 1.35 1.40 1.45 USD/JPY 85.00 85.00 85.00 90.00 90.00 GBP/USD 1.58 1.58 1.58 1.62 1.65 AUD/USD 0.97 0.98 0.98 1.00 1.02 NZD/USD 0.76 0.76 0.76 0.78 0.80 USD/CAD 1.00 1.00 1.00 0.98 0.98 USD/CNY 6.60 6.50 6.40 6.35 6.25 Notes: End-of-period figures; F denotes forecast Interest Rate Forecast
34、Update 2010Q4F 2011Q1F 2011Q2F 2011Q3F 2011Q4F US Fed Funds Target Rate 0 - 0.25 0 - 0.25 0 - 0.25 0 - 0.25 0 - 0.25 Japanese Target Rate 0 - 0.10 0 - 0.10 0 - 0.10 0 - 0.10 0 - 0.10 Euro Refinancing Rate 1.00 1.00 1.00 1.00 1.00 British Repo Rate 0.50 0.50 0.50 0.50 0.50 Australian Cash Rate 4.75 5
35、.00 5.00 5.00 5.00 New Zealand Cash Rate 3.00 3.25 3.25 3.50 3.50 Canadian Bank Rate 1.00 1.00 1.00 1.25 1.50 Notes: End-of-quarter figures; F denotes forecast Sources: Central Bank Data, Bloomberg L.P., Reuters, Hang Seng Bank This document has been issued by Hang Seng Bank Limited (“HASE”) and the
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