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Moody's: Taiwanese Banks Resilient to Economic Slowdown





Moody's Investors Service says its stable outlook for Taiwan's banking system reflects its expectation that rated banks in Taiwan will maintain their steady credit profiles, despite an economic slowdown, and that they will continue to benefit from strong government support. "Although weak external conditions are leading to slower growth in industrial production and exports, the impact on Taiwanese banks' asset quality should be buffered by low interest rates and healthy corporate balance sheets," says Sonny Hsu, a Moody's Vice President and Senior Analyst. "We expect Taiwanese banks to report stable profitability over our outlook horizon, as higher margins from overseas lending will be partially offset by higher credit charges due to tightening regulatory provisioning requirements and slower economic growth," adds Hsu. Moody's analysis is contained in its just-published report "Banking System Outlook: Taiwan," which provides an overview of credit trends affecting the banking system in the next 12-18 months. Moody's baseline scenario assumes a material slowdown in Taiwan's real GDP growth to 1.5% in 2015 and 2.0% in 2016, from 3.8% in 2014, with weak exports being a key driver. This slowdown, coupled with low expected inflationary pressure, will argue for the central bank's monetary policy to stay accommodative for an extended period, even when the US Federal Reserve begins hiking interest rates. "While the more challenging operating environment will pressure banks' asset quality metrics, we expect the resultant impact to be mitigated by sound corporate financials, continued low interest rates, and a resilient labor market," says Hsu. Moody's report highlights that Taiwan's economic and financial linkages with China (Aa3 stable) are growing, with banks' total Mainland China exposures rising to 62% of total shareholder equity as of end-June 2015, from 50% as of end-September 2013. The banks' rising Mainland China lending will expose them to risks associated with the Chinese economy, including the current economic slowdown and the country's ongoing economic rebalancing. Nevertheless, regulatory caps on banks' Mainland China exposures to 100% of banks' common shareholders' equity limit the extent of such exposures. Meanwhile, Taiwanese banks will likely strengthen their capitalization as they raise fresh equity and maintain modest overall asset growth, although capitalization remains weak relative to regional peers. Some banks will face increasing capital pressure if their expansion, mostly overseas, continues to outpace that of their local peers. Moody's also expects the government's willingness and capacity to provide support in a stress situation to remain strong. The government has made no effort to introduce a statutory bank resolution regime that entails imposition of losses on creditors on a going-concern basis if a bank becomes non-viability. The stable outlook on Taiwan's banking system is consistent with the stable outlooks for seven out of 10 Moody's-rated banks in Taiwan. The system's asset-weighted average long-term bank deposit rating is A1, while the asset-weighted average standalone baseline credit assessment is baa2. The stable outlook is also consistent with Moody's outlook on Taiwan's Aa3 government bond rating.


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Moody's Lowers Asia Growth Forecasts on Slowing Exports, subdued Domestic Demand





Moody's Investors Service has adjusted downwards its GDP growth forecasts for many Asia Pacific (APAC) sovereigns, noting that subdued global growth, exacerbated by weaker demand from China, leads APAC growth lower. Nevertheless, APAC sovereign credit profiles are resilient to lower growth, because most other APAC sovereign credit indicators, such as government debt and balance of payments ratios, remain in line with Moody's assumptions, and within the range for each sovereign's peer group. Moody's conclusions are contained in its just-released report titled "Asia Pacific Sovereigns: Credit Profiles Resilient to Slowing Exports, Subdued Domestic Demand". The report describes the adjustments to each rated Asian sovereign's growth forecast, as well as the reasons behind Moody's lower growth expectations. It highlights that weak demand from China (Aa3 stable) has dampened the overall export outlook for the region, while softer commodity prices weigh on some sovereigns' export revenues, growth and fiscal balances. Moody's report says that domestic demand in most APAC countries is unlikely to offset the effect of slower global growth, partly because an anticipated investment boost from government infrastructure spending has not materialized in some cases. In addition, households are saving more of their income gains from lower energy costs than previously expected, despite monetary easing by central banks in the region. Market volatility and political risk are also weighing on confidence. Nonetheless, Moody's sees most APAC sovereign credit profiles as resilient to the ongoing slowdown in global growth. The report points out that growth in Asia is slowing from high levels, and is on average still stronger than most other regions. The risk of deflation at this point is minimal, while lower oil prices have supported current account and fiscal positions in many Asian countries; offsetting the risks from slower growth and external financial volatility. In addition, government debt-to-GDP levels are largely moderate in much of Asia -- except in India (Baa3 positive), Japan (A1 stable), Pakistan (B3 stable) and Sri Lanka (B1 stable) -- offering some space for fiscal stimulus. On capital account volatility, Moody's expects that the pressures on exchange rates and reserves in many Asian countries will continue, as international markets respond to slower emerging market growth, and potential US Federal Reserve action. Nevertheless, the negative sovereign credit implications of such pressures are limited by currency flexibility, and reserve levels that are significantly higher in Asia than during the late nineties.


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US dollar dives as Asian equities falter





The US dollar declined Tuesday as Asian equities waddled, favoring safe-haven assets including the Japanese yen. The Nikkei slid 1.7%, as Shanghai stocks dropped on weak Chinese import data. Trading was also subdued as US markets are shut for Labor Day holiday. The greenback stood at $1.1190 per euro and $1.5298 per British pound. Against the Japanese yen, the currency closed at ¥119.00. Looking at the USD/JPY, the pair has been affected by equities, specifically “the impact of Chinese shares on Japanese stocks," said Koji Fukaya, President at FPG Securities.


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Yen Little Changed After Japan Consumer Confidence Indexl





The Cabinet office released the Japan consumer confidence index for August at 1:00 am ET Wednesday. After the data, the yen changed little against its major rivals. As of 1:01 am ET, the yen was trading at 134.28 against the euro, 185.00 against the pound, 122.67 against the Swiss franc and 120.25 against the U.S. dollar.


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Canadian dollar rises as oil prices surge





The Canadian dollar climbed Thursday after oil prices escalate, but traders do not expect its surge to last as they assimilate whether the Federal Reserve will increase interest rates as early as next week. US crude ended at $45.92 a barrel. As the Bank of Canada retained rates yesterday, investors turn their attention to Fed's rate decision next week. The loonie finished at 75.60 US cents from Wednesday's 75.47 US cents. Whether a rate increase happens next week or later in the year, the currency may weaken as traders “favor the US dollar,” said Ken Wills, Head of Corporate Exchange North America at CanadianForex.


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Indian Rupee Rises To 2-day High Against U.S. Dollar





The Indian rupee strengthened against the U.S. dollar in the morning deals on Friday. Against the greenback, the rupee rose to a 2-day high of 66.2900 from yesterday's closing value of 66.3500. If the rupee extends its uptrend, it is likely to find resistance around the 65.60 area.


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Usd/jpy Struggles to Break Above 121.30, Decline Till 119.60 Is Possible





USD/JPY has broken minor trend line support around 120.50 (trend line joining 119.96 and 120.35) and a short decline till 119.95 is possible. On the higher side intraday resistance is around 120.75 and break above will take the pair till 121.30. Short term trend reversal only above 121.30. The pair's minor support is around 120.20 and break below targets 119.95/119.50. It is good to sell on rallies around 120.40-45 with SL around 120.76 for the TP of 119.95/119.60


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BoJ Leaves Monetary Policy Unchanged





The Bank of Japan kept its massive stimulus unchanged on Tuesday as expected by economists. In a statement, the BoJ announced that the policy board headed by Governor Haruhiko Kuroda decided by an 8-1 majority vote to maintain its target of raising the monetary base at an annual pace of about JPY 80 trillion. The bank will conduct purchases in a flexible manner in accordance with financial market conditions. The bank also revealed that private consumption has been resilient and housing investment has been picking up against the background of steady improvement in the employment and income situation. The bank said that the annual rate of increase in consumer prices was flat. Inflation expectations appear to be rising on the whole from a somewhat longer-term perspective. The BoJ maintained its optimistic assessment of the economy by stating that the economy has continued to recover moderately as a trend.


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Mexico Leading Index Falls For Third Month: Conference Board





The leading index for Mexico, which measures the future economic activity, decreased for the third consecutive month in July, as majority of its components made negative contributions, figures from Conference Board showed Tuesday. The Conference Board leading economic index fell 1.6 percent in July, following a revised 0.7 percent decrease in June. Out of the six components, only one contributed positively to the index in July. The index declined by 1.9 percent between January and July 2015, but the contraction was not as deep as the decline of 5.5 percent over the previous six months. At the same time, the coincident index that reflects the current economic acticity rose 0.3 percent in July, the same rate of increase as in the previous month. Two of the three components gained during the month.


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Canadian dollar rises before Fed rate decision





The Canadian dollar climbed Tuesday as crude prices inched higher, but investors were mostly hesitant to make huge bets before the much-awaited Federal Reserve's rate decision. Market participants are split on whether the US central bank will raise interest rates or defer such a move until later in the year or 2016. The loonie finished at 75.49 US cents from Monday's 75.43 US cents. The risk from Fed's policy decision is just too important “to not pay attention to,” said Brad Schruder, Director of Foreign Exchange at BMO Capital Markets. Meanwhile, US crude ended at $44.59 a barrel, buoyed by higher gasoline prices and advances on Wall Street.


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