SINGAPORE, SINGAPORE — (Marketwired) — 04/02/13 — In his for 1 April, – whose views are widely sought after in the Forex industry, focuses on U.S. top tier data, wavering central banks, the Bank of Japan and Chinese reforms on housing and wealth management products.
Key Events to Focus On This Week
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Source: Bloomberg, FXPRIMUS
Economic Insights
Engines driving weekly volatilities set to switch on amid heavy data and event risk
Cypriot banks reopened last week with strict capital control and possible banking restructuring in upcoming weeks or months. According to the latest statement, uninsured depositors could lose as much as 60% in the applied haircut. With the ongoing Cypriot and Italian saga, top tier data in the United States and central banks- wavering arrives.
Equities remain strong in the United States, but it is hard to explain whether it is the rising interest rate environment triggering a “bonds to stocks pipeline buildup” or value investing. Based on portfolio managers- fund movement, we have yet to see “bonds shifting to equities” since there is no evidence that heavy equities inflow is from the bond portfolio. On the other hand, bond market investors usually behave more patiently than other asset class managers due to the product-s nature. However, high event and political risks around the world, especially in peripheral countries in the Euro Zone, scared some investors away.
This week, U.S. Non-Farm Payroll (NFP) and Institute for Supply Management (ISM) Purchasing Managers- Index (PMI) play key roles for the USD in the currency market. The Federal Reserve (Fed) gains limited attraction at this moment.
Earlier indications, such as Durable orders, offered a better outlook. However, consumer confidence and the Chicago PMI were not ignored and seemed to warn on the sequester effect. Durable goods orders surged by 5.7% in February, but it was largely driven by the volatile category of non-defense aircraft. The Chicago PMI also surprisingly printed on the lower side at 52.4 when expectation was much higher. Other regional manufacturing PMI posted stronger growth last month, indicating that the manufacturing pace might start to outperform the retail market.
With that, the ISM manufacturing PMI could jump to 54.5 according to my estimate, despite the mixed bag with the indicated regional manufacturing PMI. For non-farm jobs creation, the pace remains stable from the weekly perspective jobless claims in the past four weeks. The pace of the jobs growth might slightly lower to 200k in March from the previous 236k. Meanwhile, unemployment should remain at 7.7% unchanged.
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Source: Bloomberg, FXPRIMUS
To view the image associated with this press release, please visit the following link:
Source: Bloomberg, FXPRIMUS
Global central banks watch
Various central banks will release their monetary policies this week, including the Bank of Japan (BoJ), Reserve Bank of Australia (RBA), Bank of England (BoE) and European Central Bank (ECB). Among them, the ECB and BoJ could gain the most attraction since investors are keen on the next policies in response to regional turmoil and new policies for curbing deflation, respectively.
The RBA and BoE will unlikely make any monetary policy adjustments for the timing being. I expect the RBA governor could slightly shift his tone to a neutral perspective, given the domestic economy improvement, and keep the Official Cash Rate (OCR) unchanged at 3%. Any adjustment for the Aussie dollar will be trade balance and retail sales releases this week. In general, the Aussie trend moved into a complicated theme, with a sound equity market and improving domestic data, but with an unclear tightening Chinese economy and the Euro Zone contagion.
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Source: Bloomberg, FXPRIMUS
For the ECB, things now change a bit for the real environment. However, I do not think it will be a difficult press conference for Mario Draghi to “explain” the entire scenario. Lacking fresh details of the future restructuring and growth model, there is a good chance we will hear in high frequency about the “unique station in Cyprus” and the phrase “growth still moderate.”
If the ECB continues supporting the Cypriot financial system by providing additional Emergency Liquidity Assistance (ELA), it will be the Cypriot banks- (central bank/commercial banks) liability in the end. Given the current structure in the Cypriot banking system, there will be more haircuts in private sectors, especially in uninsured deposits. Besides that, it is not only Cyprus, but many other peripheral countries- banks have similar issues. The majority of indebted bank loans are mainly from the long-term refinancing operation (LTRO), carrying a higher percentage of the entire debt.
The only difficult part for Draghi to explain is carrying on to “do whatever it takes” in his pledge from July last year. The way the ECB handled the Cypriot crisis certainly dissatisfied many people around the world this time, not only in the Euro Zone. Since the “template” is set (many people thought so), there are only a few things the ECB can say or do at this stage.
The BoJ carries the highest event risk this week, with extreme anticipation for Governor Haruhiko Kuroda to act with further aggressiveness. There are still limited sources indicating Japanese 1Q growth at this stage. The Tankan business condition releasing later today will probably improve substantially after Abenomics took place. The diffusion index (DI) may rise to a minus single digit from -12 in the latest print, and non-manufacturing DI is expected to increase as well. After the Tankan survey, the crucial moment will be the BoJ monetary policy meeting and press conference held by new Governor Kuroda. The key language will be whether the BoJ would add the open-ended bond purchasing, and buying Japanese Government Bond (JGB) maturities longer than three years to reach the 2% inflation target.
Surprisingly, the DI needed very little correction to the JPY value in recent years. Having that said, if there is a sharp rise in the DI later, it suggests that policies transferred into the real economy, which might back the BoJ to act further.
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Source: Bloomberg, FXPRIMUS
Chinese reforms: credit growth threatened by new rules for housing and wealth management product (WMP) markets
Regardless of recent measures implemented on the housing market and banks- WMPs to curb growth, inflation or regulate shadow banking, the credit growth might start fading gradually after aggregate financing activities boomed in late 2012.
The Shanghai Composite Index ended the latest leg in its rally, which I believe was lead by property purchase restrictions and new regulations tightening shadow banking activities.
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Source: Bloomberg, FXPRIMUS
Regulators aim at short-term and high-yield WMPs at this stage, requesting banks to link each WMP to specific assets, rather than an undifferentiated pool in the past, as well as more inflation for issuers to declare. Besides that, all new issued WMPs of a single bank must be below 35% of its total outstanding WMPs, and it cannot exceed 4% of the banks- total assets.
The property market, a large contributor to Chinese growth, is set to have a more complicated environment in the short term, due to recent massive deals after the “guo wu” ruling announced. Beijing just banned single-person households from buying more than one residence, and Shanghai prohibited banks from giving housing loans for third-home purchasers.
ABOUT MARIO SANT SINGH
is the Director of Training & Education at . He has appeared as a guest expert on CNBC more than 35 times to talk about foreign exchange markets, and is a regular contributor to top investment publications and online portals. Known as a brilliant and intense communicator with a unique ability to -keep Forex simple- and a mission to help every man-in-the-street to trade profitably and responsibly in the Forex market, more than 20,000 people have attended his Forex trading programs. He is the only Forex trader in Asia invited to train Julius Baer Private Bankers – the third largest Swiss Bank, and ICBC, China-s largest commercial bank. Mario is also author of the best-selling book, .
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