Overnight, the Fed announced that it would keep the target range for the federal funds rate unchanged at 0.25-0.5% for the fifth consecutive time since lifting the benchmark interest rate by a notch in December 2015, which is in line with our expectation. The decision was supported by nine participants, with the only objection coming from Esther L. George of the Kansas Fed.

On the back of strong credit growth, the Chinese economy continued its stabilisation. With the decline in velocity of money, we believe it is about time to halt rapid monetary expansion.

The result of the British Referendum has left most of us in shock. A total of 33,551,983 people voted and 51.9% of them voted in favour of Britain exiting the 28-member European Union (EU). Nevertheless, according to the Guardian, the UK Prime Minister David Cameron is not "legally obliged to invoke the Lisbon treaty to start an EU exit."1 While it will take some time for us to digest the impact of these unchartered waters, some of the possible impacts are as follows.

Ahead of the Federal Open Market Committee (FOMC) meeting on 14-15 June, Fed Chairman Janet Yellen addressed the World Affairs Council of Philadelphia on 6 June and talked about the economic outlook and monetary policies. In her speech, the Fed Chair gave indications that while the pace of interest rate increase will be slow given the lingering uncertainties in the U.S. and abroad, the Fed is likely to bring interest rates upward in one of its upcoming meetings.

The Chamber’s Senior Economist Rocky Tung is attending the Belt & Road Summit today and has listed out some bullet points of key messages of the morning session. Kicking off the summit, Zhang Dejiang, advised Hong Kong to be more active in the nation’s overall development. To achieve this, he suggests that the Central Government will support Hong Kong in four specific areas.

Retail sales extended its declining trend in March, falling 9.8% YoY during the month. On an aggregate basis, retail sales declined 12.5% YoY during the first quarter of 2016, confirming a persistent weakness in retail activities. The lacklustre retail performance continues to be highly correlated with inbound tourism, which is in a dire situation as visitor arrivals dropped 10.9% YoY in the first quarter. The weakening inbound tourism has also hurt the hotel industry, as hotel occupancy rates averaged only 83.3% during the first quarter (i.e. 2.3 percentage points lower than a year ago), while the average achieved hotel room rate was down 11.1% YoY during the same period (see Chart 1). These negative figures have served to increase pessimism in the overall business sector.

It was a busy week for the Chinese Statistics Bureau, which released a basket of first quarter economic data. The set of data is reflective of the stabilising trend of growth that we have expected (see April issue of Bulletin), while there are increasing signs that top government officials have successfully calmed market jitters (see here). In the near term, a stable recovery in sentiment should be due as indicated by the solid economic data, while a more significant boost will only come with proven results of leverage reduction and profitability enhancement further down the road.

Hong Kong’s economic momentum remained lacklustre in the first couple months of this year, with the usual indicators extending their respective streaks of year-on-year decline. While strong domestic demand has carried Hong Kong through some headwinds over the years (see Chart 1), with retail sales slowing down at a much accelerated pace, it could be a hint that domestic consumption’s contribution to growth may no longer be as robust in 2016. As such, the evolving trends of Hong Kong’s domestic sectors and their implication on the labour market must be monitored carefully.

After almost two weeks of substantial news coverage, you should be aware of the Two Sessions where Chinese leaders gathered in Beijing to decide on national priorities during the beginning of March. The meeting covered the aspects of growth and reform, among many other matters, and this short summary covers what we have learned from the Two Sessions. In short, while we do expect the efforts on reform will intensify during the course of the 13th Five Year Plan (FYP), stabilising growth and managing expectation are higher on the priority list.