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SINGAPORE, SINGAPORE -- (Marketwire) -- 03/18/13 -- In his Market Brief of The Week for 18 March, leading global foreign exchange trader, educator and author Mario Sant Singh whose views are widely sought after in the Forex industry, focuses on the Cyprus fiscal crisis and possible contagion:
Key Events to Focus On This Week
-- German ZEW Economic Sentiment-- Euro Zone Manufacturing Purchasing Managers' Index (PMI)-- German Ifo Business Climate-- Reserve Bank of Australia (RBA) Monetary Policy Minutes-- FOMC meeting-- New Zealand's Gross Domestic Product (GDP)-- HSBC Flash China Manufacturing PMI
Key Events Last Week
-- U.S. Retail Sales surged to 1.1% MoM-- Reserve Bank of New Zealand (RBNZ) keeps Official Cash Rate (OCR) unchanged at 2.5% with extremely dovish message-- Australia's employment change added 71.5k in February, highest in 21st century-- EU Finance Ministers agreed to extend maturities on bailout to Ireland and Portugal-- EU offered EUR10 billion bailout to Cyprus with deposit tax condition
To view Figure 1, please visit the following link: http://media3.marketwire.com/docs/fxpfigure1-031813.pdf.
Economic Insights
Cyprus - Crisis trigger in spring?
Cyprus's President Nicos Anastasiades will seek approval of the deposit tax agreement from Parliament later in the day; he needs more than 28 seats to avoid collapse in the country. His party owns 20 seats in the Parliament, together with support from the Democratic Party's (DIKO) eight seats; he needs to gain one more seat. I project a very low chance of "chaos" appearing later in the day. However, a "bank run" in the country might not be avoided. A similar situation might spread to the Italian banking system later, that is the contagion risk, as negotiations on fiscal and banking rules could add further stress to the fragile economy in the region. Anastasiades said Cyprus had a choice between "a catastrophic scenario of disorderly bankruptcy, or a scenario of a painful but controlled management of the crisis."
The European Central Bank (ECB) doesn't seem intent on exempting the tax imposition, even with those whose deposit is less than EUR100,000. Yet, I do not think the "haircut" measures would be applied in Italy and Spain should they need bailouts. The call for the "deposit cut" was mainly to bring some discipline to the Cypriot banking system, including Anti-Money Laundering (AML) as well as high risk investment. However, I do not rule out the "knee jerk" reaction in peripheral countries such as Spain and Italy, as the market might be concerned whether the depositors' haircut will lead to bank bondholders in the future.
There have always been "crisis triggers" in the Euro Zone in spring since 2010, or the theory of "sell in May and run away" after a bullish first quarter. There is a chance Cyprus will trigger the "crisis" in 2013, providing excuses for traders to sell off equities, the Euro and peripheral sovereign bonds.
To view Figure 2, please visit the following link: http://media3.marketwire.com/docs/fxpfigure2-031813.pdf.
