By CentralBankNews.info
Pakistan’s central bank maintained its policy rate at 10.0 percent, as expected by most economists, saying recent improvements in economic confidence, foreign exchange reserves and low inflationary pressures need to be nurtured to ensure their sustainability.
The State Bank of Pakistan (SBP), which has held its rate steady since raising it by 100 basis points in 2013, said average inflation in the current 2013/14 fiscal year has remained volatile – due to expected movements in food prices and administered prices – but still in single digits “and policy vigilance is required for this trend to continue.”
Average consumer price inflation in the 2013/14 fiscal year from July 1, 2013 through April, was 8.7 percent, above the bank’s target of 8.0 percent but well below the bank’s forecast from March of inflation between 10 and 11 percent.
For fiscal 2015, the central bank expects average inflation of around 8.0 percent based on moderate aggregate demand, a deceleration in broad money growth due to contained government borrowing, expectations of low inflationary pressure and a stable outlook for international commodity prices.
Headline inflation in Pakistan rose to 9.18 percent in April from 8.53 percent in March, with core inflation also rising to 8.50 percent from 7.6 percent. Over the last 12 months core inflation has remained stable around 8.0 percent.
Indicators of Pakistan’s economic activity are improving, but the central bank said “further reforms, especially in the energy sector, would help consolidated the momentum” and “improvement in productivity and competitiveness is a must to continue to build foreign exchange reserves in the medium term while meeting external obligations.”
Provisional estimates show growth in Pakistan’s Gross Domestic Product in fiscal 2014 of 4.1 percent, slightly above the SBP’s forecast in its latest quarterly report of 3-4 percent.
In 2012/13 the economy expanded by 3.6 percent, down from 4.4 percent in 2011/12 but broadly similar to 2010/11’s 3.7 percent.
Earlier this month in Dubai the International Monetary Fund forecast that Pakistan’s GDP would expand by 3.3 percent in the current fiscal year, accelerating to 4 percent next year.
In its statement in connection with the IMF’s third review of Pakistan’s extended fund facility from May 1-9, the IMF “urged the SBP to remain vigilant on recent inflationary pressures in their monetary policy decisions, while containing their ambitious program to rebuild reserves.”
“For FY2014/15, the authorities should target an additional reduction in inflation towards their medium-term goal of 6-7 percent,” the IMF said.
Economic growth this year is being led by a 5.8 percent rise in industrial sector output, the SBP said, adding that private credit also points toward improved economic activity.
In the first nine months of fiscal 2013/14, net credit to the private sector was almost 2-1/2 times more than the same period last year and the monthly average of gross credit disbursements, were around 150 billion rupees higher this year, the SBP said.
“These trends show that the interest rate is only one factor in affecting economic activity,” the SBP said, adding improved sentiment, a better availability of energy, and lower government borrowing from the banking system has encouraged the private sector.
“The continuation of these trends, however, would require a sustained effort to ease impediments to growth through implementation of necessary reforms,” the bank said, particularly in the energy sector where reforms can help raise productivity, ease the fiscal burden and reduce the import bill.
Pakistan’s trade deficit remained high at US$12.2 billion in the first nine months of 2013/14, but helped by robust growth in workers’ remittances, the current account deficit of $2.3 billion “seems quite manageable at this point in time,” the SBP said.
Pakistan’s foreign exchange reserves surged to $8.0 billion by May 9 from $5.4 billion end-March, helped by better-than-projected inflows from the issuance of euro bonds of $2 billion and other inflows from multilateral sources.
“This marked improvement in reserves and the consequent stability in the foreign exchange market is the main indicator of improved sentiments in and about the economy,” the SBP said, adding that positive sentiment could help attract further financial inflows and boost reserves more.
After tumbling in 2008, the depreciation of the Pakistani rupee has been steady in recent years as it fell by 27 percent from 79 to the U.S. dollar in early 2009 to 108 by early December 2013.
But since Dec. 4, 2013 the rupee has gained strength, and was trading at 98.5 to the dollar on Friday, up 6.5 percent this year.
The SBP said the rupee’s real effective exchange rate had appreciated by 8.0 percent in the third quarter of fiscal 2013/14 and cautioned that “its potential impact on the trade balance needs to be monitored carefully going forward.”
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The State of the Market
Each January, except in a year following a general election, the US president delivers the State of the Union address.
It usually involves the president saying, ‘The State of the Union is strong’.
They’ll say it’s strong even if the Union isn’t strong.
So as we begin the approach towards the middle of this year and investors wonder if now is the time to buy stocks, we’ll ask about the State of the Market.
Is the market strong? Let’s see…
There is no simple or single way to measure the ‘strength’ of the market.
You can’t put it on a scale.
You can’t get it to bash something with a hammer to see if the bell rings.
And you can’t get it to pump iron to prove that this market is the most manly and strongest market of them all.
So what can you do? Can you look at the economy? Will that give you a clue? Not really…
The stock market and the economy aren’t the same thing
It’s important to remember a key thing about investing.
The economy and the stock market aren’t the same thing.
A simple way to think about the difference is this.
The economy is what’s happening now.
On the other hand the stock market is what investors think the economy will do in the future.
Does that make sense?
When you think about the economy you should think about businesses, consumers, manufacturers, retailers, and service providers.
It’s everything that involves the interaction of one group of individuals with another. It’s what they’re doing today.
But that’s not the stock market.
Sure, the stock market involves the interaction of individuals. And like the economy, the stock market has buyers and sellers.
But unlike the economy the stock market isn’t about what’s happening today. The stock market reflects what investors think will happen in the future.
It’s for that reason that, unlike many other folks, we have a relatively positive outlook on the future.
We’re not saying the future will be perfect and without problems. That wouldn’t be reasonable. But what we are saying is that throughout history the world has faced many problems. But thanks to the ingenuity of humans, things have generally turned out fine.
Not great, but getting better
That thought in itself can be dangerous.
It can lead people to think that they can do absolutely anything and things will be fine.
That’s only true until it isn’t true.
Arguably the whole subprime mortgage mess during the 1980s through to the late 2000s was a big part of that. Those creating the toxic assets figured that it didn’t matter what they did because the government would ultimately bail them out.
Boy, did they get that right.
The government did bail them out. And although it wouldn’t be fair to say things are back to normal, it would be fair to say that for most people things are looking better.
That’s perhaps with the exception of the one in five Americans currently on food stamps.
But that’s today. Isn’t it possible that things could gradually improve in the future? And if so, doesn’t it make sense to invest today in anticipation of future improvements?
It makes sense to us.
So how do we see the future?
You don’t need high growth for a boom
As we’ve mentioned, we have a positive outlook.
And it’s for one key reason.
As we look at it, China’s economic growth path is only beginning. That may seem a strange view considering the rapid growth over the past 20 years.
But the reality is that China is shifting from an emerging market economy into an emerged market economy. This is where we see parallels with the US economy at the turn of the 20th century.
The assumption by many analysts is that now China isn’t growing at 8% or 9%, the economy will collapse and there won’t be a major driving economic force in the world.
We don’t believe that for a second. And we’ve got history on our side too. Look at this chart:
As you can see from this chart, the average annual gross domestic product (GDP) growth for the US between 1948 and 1989 was around 3%.
This period coincides with what you could call the ‘Golden Age’ of American living. It was when the US ruled the world as both a manufacturer and a consumer of goods…all with a 3% average annual growth rate.
China’s GDP growth rate at the moment is 7.5%.
You see, in terms of where China is on the economic growth chart, it hasn’t even reached 1948 yet. And yet we’re supposed to believe that this economic behemoth has already peaked and that’s it’s only downhill from here?
We don’t buy it.
Yes, China may have peaked in terms of the economic growth rate, but it’s nowhere near peaking in terms of total economic growth.
That’s yet to come.
And that’s exactly why we’re backing China to take over as the world’s largest economy in the near future. It may not happen this year or next year, but it will happen.
When it does it will have a huge and disruptive impact on the world economy, and Australia stands to be right at the forefront to take advantage of it.
In short, you’ve got two options to play the growth of China. You can either stand by and watch it all happen. Or you can be an active part of it by investing in the companies and industries set to gain the most.
We know what we prefer. We hope you take the same view.
Cheers,
Kris+
Two stories from Money Morning this week…
This week I wrote about why some people are particularly miffed at the fact that we offer a 30-day money back guarantee on our paid investment advisories. For many people who don’t subscribe that’s not enough. They don’t want to pay a cent for the valuable investment analysis we provide. In Monday’s Money Morning I explained why a small annual membership fee for one of our best investment advisories really is a small price to pay for taking part in this impending bull market.
In Wednesday’s Money Morning I explained that much of the ‘market crash’ talk was overdone. I explained that there were signs in the market to suggest that another boom is on the way. It’s early days, but these are the signs that make me positive about the future for stocks.
And this…
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GBP/CAD Rallies From The Edge Of The Cliff; Range Persists For Now
Technical Sentiment: Neutral
Key Takeaways
- GBP/CAD found plenty of buyers near the 1.8160 support ;
- Thursday’s Bullish Pin Bar was activated;
- The pair will assume a range personality next week unless the rally ends around 1.8420.
The 0.4% increase in Canadian Manufacturing Sales, compared to 0.2% forecast, was not enough to keep traders from buying GBP/CAD once it approached the critical support level at 1.8160. The ensuing rally erased Thursday’s gains, closing the Daily bar as a bullish Pin bar, dodging a reversal of the long term uptrend and ultimately indicating the main range will persist for now.
Technical Analysis
GBP/CAD is currently trading above 1.8315 after activating Thursday’s bullish Pin bar price action pattern. While the main range extends from the support at 1.8160 up to 1.8575, the pair still maintains a valid downtrend configuration for the month of May, with Lower Highs and Lower Lows. As such, traders will be reluctant to target the upper side of the range while there’s a strong possibility for the pair for form another lower high between 1.83-1.84 and dip lower to attack the support once again.
Around 1.8330 the pair will encounter a Fibonacci Confluence which also coincides with a pivot zone from early April. A rejection here maintains the Lower High configuration. On the other hand, a break above this level opens the way towards 1.8406/25, where the 200 Simple Moving Average on the 4H time frame provides resistance alongside the 61.8% Fibonacci Retracement level from 1.8585 down to 1.8170.
4H Stochastic is no longer in oversold territory, which allows the pair to sell-off on any rejections from the previously mentioned resistance levels. While GBP/CAD is trading below 1.8425 a return to 1.8160 is favored, thus selling rallies remains the preferred strategy at this point.
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Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets
Crude Prices Bounce Back on Supply Concerns
Crude prices bounce back from previous losses, as the commodity was seen trading higher on Friday on speculation that the ongoing tension in Ukraine may weigh on supplies from Russia, the world’s biggest energy exporter.
Futures for the North American West Texas Intermediate (WTI) for June delivery rose 0.38% higher to $101.89 a barrel on the New York Mercantile Exchange at the time of writing.
While the European benchmark Brent crude for June settlement was 0.11% higher to $109.21 a barrel on the London-based ICE Futures Europe exchange.
Crude – Supply Concerns
According to a monthly oil market report released by the International Energy Agency (IEA) yesterday, the Organization of Petroleum exporting Countries is expected to supply an average of 30.7 million barrels a day of crude in the second half of the year.
Meanwhile, with Ukraine’s election around the corner, tensions in the country continue to escalate as Ukraine along with the US and European Union blames Russia for the ongoing crises in the eastern region.
The Saudi Oil Minister Ali Al-Naimi , expressed concerns over the possible impact the ongoing tensions could have on supplies after OPEC said it was prepared to face any shortage in crude supplies which could arise if exports from Russia were disrupted.
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Stocks Market Report 16th May
Stocks – Asia
Stocks in Asia were seen falling on the last day of the trading week, as the stronger yen dragged Japanese stocks lower.
Japan’s benchmark Nikkei 225 index lost 1.44% to 14,092.00 points, while Tokyo’s Topix index sank 1.81% to 1,156.92.
Japan’s industrial production climbed 0.7% higher in March on a monthly basis, jumping from the previous figure of 0.3% recorded in the previous month. While on an annual basis, output rose 7.4% higher, following the 7% seen in February.
The nation’s stronger yen weighed on exports as the textile producer Nitto Boseki lost 5.57%, while the Japanese car-makers, Toyota edged 2.4% lower.
Hong Kong’s Hang Seng Index lost 0.36%, trading at 22,648.00 points, while the mainland Chinese benchmark Shanghai Composite declined 0.43% to 2,016.28 points.
In China, property developer, China overseas lost 3.06%, while China Resources Land edged 3.87% lower.
Australia
Australia’s benchmark S&P/ASX 200 index slid 0.60%, closing at 5,477.70 points, while the South Korean Kospi index shed 0.16%, ending the session at 2,013.44 points.
The Australian iron ore miner Arrium fell 4.20%, while Independence Group dropped 4.12% lower and gas explorer Drillsearch Energy added 2.87%.
Stocks – Europe
Europe stocks were seen a little changed on Friday, as the European GDP and inflation data came in lower than expected.
The European Euro Stoxx 50 came in 0.16% lower to 3,157.00 at the time of writing, while the German DAX stood at 0.09% to 9,647.50.
The French CAC 40 rose 0.09% to 4,440.80, while the UK benchmark FTSE 100 edged 0.01% lower to 6,840.50.
In other economic news, the French non-farm payrolls data for the first quarter came in 0.1% lower, as analysts expected, following the 0.1% rise seen in the previous quarter, reports from the National Institute for Statistics and Economics Studies showed.
While Italy’s trade balance came in at a surplus of 3.87 billion for March, up from the 2.63 billion recorded in the previous month.
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HY MARKETS News: Forex Report: USD/CHF
USD/CHF recently broke above the upward correction target 0.8850 that was set in our earlier report for this currency pair. The breakout of this correction target coincided with the breakout of the two resistance trendlines belonging to two down channels from this January and last year respectively.
This triple breakout accelerated the currently active C-wave of the intermediate ABC correction (2) from March.This wave recently stopped at the resistance level 0.8950 (top of the previous A-wave). If USD/CHF breaks above 0.8950 – it can rise to the next buy target at 0.9000.
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HY MARKETS News: Index Report: Dow Jones Industrial Average
Dow Jones Industrial Average recently reached the resistance level 16660.00 which is the first of the two buy targets that were set in our earlier forecast for this index(16660.00 and 16800.00).
Due to the strength of the resistance zone near 16660.00 (which has been reversing the index from the start of this year), Dow Jones Industrial Average immediately reversed down after reaching 16660.00. The price can be expected to correct further to the downward correction target 16200.00 (standing close to 50% Fibonacci Correction of the preceding sharp minor upward impulse wave 1 from April).
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HY MARKETS News: Commodities Report: Silver
Silver has been under strong bearish pressure recently – with each upward correction being met with sharp selling which eventually brought the price to the major support level 19.00 (which has been steadily reversing the Silver up from the start of December, as you can see on the daily Silver chart below).
The latest upward correction from 19.00 stopped at the combined resistance zone lying between the resistance level 20.00 and 38.2% Fibonacci Correction of the preceding downward impulse from March.Silver is expected to fall to 19.00 in the nearest time.
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HY MARKETS News: Stocks Report:International Business Machines Corp
IBM continues to fall after the recent breakout of the daily up channel from the start of February (which has enclosed the previous primary ABC correction).
The top of this up channel formed when IBM corrected down from the resistance area lying between the round resistance level 200.00 and 61.8% Fibonacci Correction of the preceding downward impulse from March of 2013. IBM recently rose shortly to retest the broken up channel –from where it reversed down strongly. IBM is trading close to support level 187.00. If the price breaks below 187.00 is can fall to the next sell target at 182.00.
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EURJPY Breaks Support, 200-Day Moving Average Within Reach
Technical Sentiment: Bearish
Key Takeaways
- Investors continue to sell Euro as 15.2B Trade Balance surplus disappoints;
- EUR/JPY broke below the 139 critical support during the European Session;
- The 200-Day Moving Average will be a possible target for next week.
The Euro currency weakened again today as Trade Balance surplus was slightly disappointing at 15.2B, and French employment posted a -0.1% decrease in the first quarter of 2014. Meanwhile the JPY strengthened; forcing EUR/JPY to break the support at 139 and suggesting a 4th consecutive losing day is in the books.
Technical Analysis
EUR/JPY has been extremely bearish since last week when the initial supports at 141 and 140 finally caved in, allowing investors and traders to drive prices lower at a steady pace. Today’s break below 139 signals the market is open for even deeper losses in the coming weeks, even if price will have to retrace at some point to overcome the oversold conditions.
139.10 was the 61.8% Fibonacci Retracement from the February 4th Low of 136.21 up to March 7th High of 143.77. Price breaking below this level suggests we are indeed in a bearish trend rather than just a correction.
The next major support is the 200-Day Moving Average, currently priced at 137.78. With EUR/JPY trading only 100 pips above this level, it’s very likely we’ll see a touch early next week at the latest.
Daily and 4H Stochastic levels are in oversold territory, yet price action has thus far offered no bullish reactions. A bounce from the 200-Day Simple Moving Average is very likely. If the bounce coincides with a huge bullish price action signal, the market will correct this bearish swing all the way up to 140.00 / 141.00. Otherwise, action will be restricted between 137 and 139 until oversold conditions pass.
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Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets
