Tuesday, November 13, 2012

Financial Review: Positive Market Signs in 2012 Q3

Although uncertainties were still there, financial markets had eventually shown some positive signs in 2012 Q3 (third quarter). In the following table, we will show you the executive summary of critical business and financial news in 2012 Q3 (July to September):

July 5:(1) People's Bank of China (PBoC) cut interest rates the second time within a month. One-year benchmark lending rate was reduced by 0.31% and benchmark deposit rates also cut by 0.25%. Read also: PBoC Really Cutting Interest Rates?.
(2) European Central Bank (ECB) cut benchmark interest rate by 0.25% from 1% to a record-low level of 0.75%. ECB also cut its overnight deposit facility rate from 0.25% to a record-low level of 0%, thus encouraging banks to lend out their money instead of keeping their funds in ECB.
(3) Bank of England (BoE) Monetary Policy Committee (MPC) launched a new round of quantitative easing (its QE4) worth GBP 50 billion to buy U.K. government bonds, making its total QE size hit GBP 375 billion.
(4) Denmark Central Bank cut its certificates of deposit (CD) rate from 0.05% to -0.2%, the first time in history to implement a negative CD rate policy.
July 9:European Union (EU) finance ministers in Brussels EU Summit agreed to relax budget deficit targets for Spain, thus giving Spain one more year to meet fiscal target until the extended deadline of 2014.
July 12:(1) Brazil Central Bank (BCB) Monetary Policy Committee (COPOM) cut its benchmark Selic interest rate by 0.5% to a record-low level of 8%.
(2) South Korea Central Bank cut its benchmark interest rates by 0.25% to 3%, the first rate cut since February 2009.
(3) Bank of Japan (BoJ) increased its asset-purchasing size to JPY 45 trillion (was JPY 40 trillion), but at the same time decreased its credit-lending size to JPY 25 trillion (was JPY 30 trillion), thus keeping total size of its quantitative easing package unchanged (JPY 70 trillion).
July 17:ChinaAMC CSI300 ETF became the first RQFII A-share listed fund in the world. Read more: ChinaAMC CSI300 ETF.
July 19:(1) Corn and soyabean prices their reached historical highs on supply concerns as U.S. hit by its worst drought in over 50 years.
(2) Yield of U.S. 10-year TIPS (Treasury Inflation Protected Securities) turned negative and hit its record-low level of -0.637%.
July 20:(1) European Central Bank (ECB) announced to suspend accepting Greece sovereign debts as collateral from August 1, 2012 onwards but would soon reassess eligibility of these debts upon their auditors finished reviewing progress of Greece fiscal deficit reduction in a few weeks.
(2) Local government Valencia announced to seek bailout from Spain central government as expecting economic recession would continue in 2013.
(3) Hong Kong became the first financial centre in the world to have RMB sovereign bond listing in its stock exchange. Read more: RMB Sovereign Bond in HK.
July 23:(1) Moody's Investors Service (MIS) cut sovereign-debt credit rating outlooks of Germany, Luxembourg and Netherlands to negative for their financial risks to support other eurozone members .
(2) Spain banned short selling on all stocks, derivatives as well as OTC (Over-The-Counter) market instruments for 3 months.
(3) Indonesia started to accept RMB as one of its foreign-exchange reserve currencies by purchasing RMB-denominated bonds in PRC interbank market. You may read also: our 2012 RMB Forex Target.
July 27:(1) 2012 London Summer Olympic Games Began.
(2) Spain National Statistics Institute (NSI) announced that unemployment rate in Q2 hit record high level of 24.6% since 1976 for its stagnated economy.
July 30:Over half of India population suffered from massive power failure.
Aug 20:Apple Inc. (AAPL) surpassed Microsoft's past record to become the biggest company ever by stock-market value (non inflation-adjusted) in U.S. history.
Aug 22:US Dollar Index fell to break its bull trend as FOMC (Federal Open Market Committee) meeting minutes revealed a high probability that US Federal Reserve would launch new round of economic stimulus (QE3) in the near future.
Aug 24:Apple Inc. (AAPL) won over USD$1 billion from Korea Samsung Electronics in U.S. court who ruled Samsung Galaxy smartphones had copied illegally from iPads/iPhones and infringed patents on Apple's mobile technology.
Sept 6:(1) European Central Bank (ECB) announced to kick-off OMT (Outright Monetary Transactions) to buy Eurozone-area sovereign bonds in secondary markets, with strict conditionality as ESM (European Stability Mechanism) or EFSF (European Financial Stability Facility) program. Although ECB committed that the extra liquidity created by OMT would be sterilized fully and re-absorbed by fixed-term deposits, but in fact these deposits have then been able to be used as collateral for borrowing money from ECB.
(2) H.K. new CE (Chief Executive) CY Leung announced to introduce a pilot 'Hong Kong land for Hong Kong people' policy on two new sites to restrict purchase of flats there only to Hong Kong permanent residents. This was a new cooling measure for the local housing market after the previous SSD (Special Stamp Duty) policy.
Sept 12:Germany Highest Federal Constitutional Court (FCC) ruled ESM (European Stability Mechanism) conditionally legal, provided that Germany's contribution (EUR 190 billion) could not be increased without FCC's consent and legislative approval.
Sept 13:(1) FOMC (Federal Open Market Committee) resorted to the third round of quantitative easing (QE3) to print an extra USD$40 billion per month until domestic unemployment situation becomes satisfactory. US Federal Reserve also extended Operation Twist (OT2) execution to end-2012 and extended low interest-rate frozen period to mid-2015. Read more: New Quantitative Easing Policy.
(2) Russia Central Bank unexpectedly turned to raise interest rates on inflationary concerns, the first rate hike since December 2011.
(3) CME announced to compete against HKEx by introducing offshore RMB (CNH) forex futures later in 2012 Q4. Read more: CME CNH Forex Futures.
Sept 17:(1) First anniversary of Occupy Wall Street (OWS) protest campaign.
(2) HKEX launched the first-ever offshore RMB (CNH) forex futures. Read more: HKEx CNH Forex Futures.
Sept 18:Bursa Malaysia Stock Exchange (BM) and Singapore Exchange (SGX) became the first two exchanges to reconnect their securities trading networks electronically over the ASEAN (Association of Southeast Asian Nations) Exchanges Link since the Asian financial crisis, thus facilitating cross-border securities trading for regional investors across the combined Intra-ASEAN Network (IAN).
Sept 19:Bank of Japan (BoJ) increased its asset-purchasing size to JPY 55 trillion (was JPY 45 trillion), while keeping its credit-lending size unchanged at JPY 25 trillion, thus expanding total size of its quantitative easing package to JPY 80 trillion (was JPY 70 trillion). This extra JPY 10 trillion would purchase Japanese government bonds (JGBs) for around JPY 5 trillion as well as Japanese treasury discount bills (T-Bills) for another JPY 5 trillion.
Sept 28:Martin Wheatley from U.K. Financial Conduct Authority (FCA) finished review of LIBOR (London InterBank Offered Rate) manipulation problems and suggested that self-regulation of LIBOR setting system by commercial banks did not work but this broken interbank-rate submission system could still be repaired.

Just like our previous practice, this 2012 Q3 financial review summary should serve as an extension of our Q2 summary (Source: Financial Review 2012 Q2 (Second Quarter)). For our whole table of financial reviews in previous years, please do not miss: Our whole table of Financial Reviews.

In conclusion, financial markets had shown some positive signs in 2012 Q3. Although economies like China, Eurozone, Brazil, Denmark, South Korea etc did cut interest rates and had shown weak confidence during this quarter, global financial markets could still be stabilized in 2012 Q3 as U.S., Japan, U.K. and Eurozone extended their monetary easing programs (no matter they named Quantitative Easing, Operation Twist or Outright Monetary Transactions). The key turnaround in 2012 Q3 should had occurred on August 22 when FOMC (Federal Open Market Committee) meeting minutes revealed a high probability that US Federal Reserve would soon launch new round of economic stimulus (QE3). As US Dollar Index started to fall and broke its bull trend, global financial markets eventually had seen a light at the end of dark tunnel.

Another key turnaround in 2012 Q3 happened on September 6 when European Central Bank (ECB) announced to initiate OMT (Outright Monetary Transactions) to purchase Eurozone-area sovereign bonds in secondary markets. This decision from European leaders did help reducing the risk of Eurozone breakup and could help restoring investor confidence in Euro. We do hope that this positive trend can continue and we can see real global economic recovery ahead in 2012 Q4 (Fourth Quarter).


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