14 December 2015 Please read the "Special Disclaimer" Section on the last pageSecurities Research Report Global Economy Falling USD Index Failed To Spur Bulk Commodities Prices, Wait For The Fed’s Monetary Conference Global Economic Weekly Weekly Review European and American stock markets tumbled with RMB exchange rate setting a new low in four years. The US data this week all missed expectation this week (Michigan consumer confidence for December, retail data for November and JOLTs position vacancy for October). Yet we think these data will not alter expectation for initiate rate hike by the Fed next week (December 15, 16). The MoM growth of retail selling (0.2%) in November missed expectation yet was still a new high in four months. Besides, the core retail growth excluding automobiles and gasoline rose 0.5% MoM and was better than expected, indicating that US consumer demand was improving mildly. The fact supports for rate in December. European and US stock markets saw expanded losses, with the S&P 500 and Germany's DAX both tumbled 3.8%. Yields on US 10-year treasuries and German bunds fell around 15bp to 2.13% and 0.54%, respectively. Following a new high last week and the European central bank conference on December 3, the dollar index fell gradually by 0.7% this week. Bulk commodities prices continued to move downward and the Bloomberg Commodities Index hit a new low in 16 years, resulting in soaring default risk of bulk commodities enterprises. The gold lost 1.1%, reaching a new low since 2009. The oil price declined below US$40 per barrel in trading, an all-time low in seven years. Focus of the market this week includes: ① The offshore RMB exchange rate slid below 6.56. An increasing expectation for RMB devaluation will increase concerns about worldwide deflection. ② Declining dollar index failed to trigger build commodities which on the contrary hit years’ low. The reason, in addition to overcapacity pressure, also lies in China’s slowing down economy and the worry about accelerating devaluation of RMB. There is a great likelihood for the Fed to raise rate next week; pay attention to the Fed’s statement about the way of rate hike in the future. The market currently has a high expectation for rate hike at the December 15-December 16 conference. Wall Street Journal survey showed 97% of economists expected a rate hike and the possibility shown by the federal funds rate futures was also higher than 85%. The market’s focus has shifted to the Fed’s revision of forward-looking guidance and its statement about ways to increase rate. Based on convention, the market will interpret the Fed conference from three aspects: post-conference statement, economic forecasts and interest rate expectations bitmap, and Yellen's speech on the press conference. Firstly, investors are advised to pay attention to the wording on inflation in the post-conference statement. It is predicted that the Fed will maintain its tone to decline economic routes by extensive economic data. Secondly, given that US economic data was below expectation recently and the market has maintained fluctuation, the Fed is likely to lower economic growth estimate and the interest rate expectations bitmap may also be lowered. It is estimated that the Fed will maintain a slow rate hike pace. The market currently expects 1-2 rate hikes in 2016 while the Fed estimated Analyst: Rong Cui 021-22167199 cuirong@ebscn.com Practice license number: S0930513080004 Analyst: Gao Xu 010-56513082 gaoxu@ebscn.com Practice license number: S0930512080004 Macroeconomic performance vs. forecast index Next week’s key data and events Date Economic Data 12/15/2015 US CPI 12/15-16/2015 Federal Reserve Conference Minutes 12/16/2015 US Housing Starts/Operation 12/17/2015 Japan Central Bank Conference Watch Everbright Macro Grasp the Economic Pulse U.S. Japan Eurozone Emerging Markets 2015-12-14 Global Economy Weekly Please read the "Special Disclaimer" Section on the last page - 2 - Securities Research Report previously to raise rate once a quarter. We estimate the Fed will increase rates by 25bp each time for 2-3 times. The upside risk comes from accelerated core inflation (as higher employment rate and rising wages will support service industry and core CPI). Provided that the core inflation quickens, the Fed will raise rate earlier than the market has expected. Lastly, it is estimated that Yellen’s speech will continue to be dovish to alleviate impact from the first rate increase in six years. Therefore, it is most likely that, at the December conference, the Fed will announce rate hike following a progressive speed (that is the dovish statement). If this happens, the dollar