Accomodative Monetary Policy to Spur Emerging Markets Growth in H2

SINGAPORE, July 16 (Bernama) -- A more accommodative monetary policy stance should help to underpin growth in emerging markets in the second half (H2), says ABN Amro Private Banking in its research note. In its Global Weekly-Rate Cutting in Asia, ABN Amro said: "In China, growth fell to 7.6 per cent year-on-year in Q2, down from 8.1 per cent in the previous quarter, the slowest in three years. "However, the second half of the year is likely to be more promising." ABN Amro said new bank loans rose markedly in June to 919 billion yuan up from 793 billion yuan in May, while growth in investment started to accelerate, suggesting that the government’s measures to stimulate the economy have started to bear fruit and that "we have seen the trough in growth." Meanwhile, central banks in other economies also continued to ease policy. In Korea, the central bank cut its base interest rate for the first time since 2009, while Brazil’s central bank reduced the Selic rate by a further 50bps, bringing it to 8 per cent, the lowest level on record. "A more accommodative monetary policy stance would help underpin growth in emerging markets in the second half, which is one reason we think we are close to the bottom in the global cycle," ABN Amro said. This would be particularly helpful for the eurozone where countries are struggling to break the vicious feedback loop between sovereign debt problems and poorly performing economies, as could be seen in Moody’s downgrade of Italy by two notches. The note said Moody's downgraded Spanish government bonds three notches on June 13 and downgraded Italy's to Baa2 from A3 on July 13. The outlook remains negative for both. Standard & Poor’s confirmed its negative stance, saying both countries could face one or two downgrades, which would however still keep them within investment grade quality. Markets could nevertheless trade them as high yields. This will increase pressure on European leaders to act, and the European Central Bank (ECB) to use its tools. ABN Amro noted sooner or later the financial markets will be aligned again and most likely resulting in a lower euro (EUR). In the current sentiment, stronger-than-expected US data will likely lead to lower expectations of quantitative easing, whereas weaker US data will likely lead to stronger demand for the US dollar driven by risk aversion. Lower eurozone CPI data could increase speculation about more ECB monetary easing. The support level 1.2152 in EUR/USD is within reach. If this support snaps, the way is paved towards the low of 2010 at 1.1877. On equities, the private bank said earnings from banks, leading industrials like GE and a whole range of other companies (Google, Johnson & Johnson and Akzo Nobel among others) will set the tone for the rest of the month. So far, not many profit warnings have been issued. In terms of commodities, it said from a technical point of view the resistance at 102.45 in Brent oil prices is an important level to watch. If this level is taken out, there is upward potential in the Brent price towards the 110-112 resistance zone. Gold prices slowly but surely are pressed lower, mainly driven by a stronger US dollar. The crucial support level remains 1522. If this level is taken out, the picture clearly deteriorates. Drivers to watch are central banks buying, expectations regarding the Fed’s policy, the state of the Chinese economy and developments in the Indian Rupee (INR). As long is the INR is under pressure, jewellery demand from India is unlikely to recover, the note added. -- BERNAMA