SINGAPORE, SINGAPORE -- (Marketwire) -- 03/05/13 -- In his Market Brief of The Week for 4 March, leading global foreign exchange trader, educator and author Mario Sant Singh - whose views are widely sought after in the Forex industry - focuses on messaging from the Central Banks and on China economic announcements:
Key Events to Focus On This Week
-- RBA OCR decision-- Australian retail sales-- Australian Gross Domestic Product (GDP)-- Australian trade balance-- European Central Bank (ECB) Rate Decision and Press conference-- China's February data
Key Events Last Week
-- Italian election deadlock-- HSBC and China's official manufacturing Purchasing Managers' Index (PMI) slows to 50.4 and 50.1-- U.S. home sales pushed equities higher-- Italian bond action showed better demand, however yield higher-- U.S. 4Q GDP revised slightly higher to 0.1% QoQ, lower than the expectation at 0.5%-- Federal Reserve (Fed) Ben Bernanke defended current Quantitative Easing (QE) in testimony
To view Figure 1, please visit the following link: http://media3.marketwire.com/docs/fxp0305fig1.pdf.
Reserve Bank of Australia (RBA) will unlikely lower Official Cash Rate (OCR) this round
I recognized in recent RBA messages that future rate cuts will be on standby. However, I prefer the view that the central bank should hold the OCR unchanged at 3% this week. My bias is supported by needing more time to review improving global economic signs, especially for China.
It will be a heavy week for Australia. After the RBA's OCR decision, top-tier data such as 4Q Gross Domestic Product (GDP) and Trade balance will be released; Retail sales will be released before the OCR decision. There could be some upside surprise from the GDP figure, since the non-retail portion might spur growth from an increase in 4Q iron ore exports activities due to Chinese infrastructure projects.
To view Figure 2, please visit the following link: http://media3.marketwire.com/docs/fxp0305fig2.pdf.
In the last RBA testimony, Governor Glenn Stevens turned slightly positive on global recovery in 2013, which can be considered a forward-looking indicator for the upcoming rate decision. Compared to the few speeches last year, the governor shifted the economic outlook assessment to the Euro Zone and China, as he showed less concern on the Euro Zone's contagion and worries on China's economic hard landing. Thus, the country's 4Q growth may be faster than its previous quarter on the YoY basis. The same goes for China, since the Australian economy started a downtrend from its peak at 4.5% YoY in Q1, then fell to 3.8% and 3.1% YoY in Q2 and Q3. In my estimate, the economy's growth in 4Q could achieve the 3.3-3.5% range, though the general market forecasts a 3% YoY growth.
China's data watch
China will release its federal data this week, including more key data on the weekend. The imports and exports data will be released on Friday. Consumer Price Index (CPI), Producer Price Index (PPI), Industrial Production (IP) and Retail Sales (RS) will be released on Saturday. In general, the figure is set to have a discounted factor due to the lunar year effect (2012's lunar year was in January).
If so, recent tightening fears will be eased, together with the soft patch of manufacturing data. People's Bank of China (PBOC) adviser Song Guoqing said moderating inflation this month will relieve pressure for tightening, and he expects inflation will be "relatively low" this month due to slowing food-price gains. He stated that, compared to January and February, the pressure for tightening monetary policy and macro-economic controls "has in my view been relieved."
However, traders largely priced in further tightening from the government and PBOC in the domestic equities market. In this approach, I remain cautious on future development and monetary price.
To view Figure 3, please visit the following link: http://media3.marketwire.com/docs/fxp0305fig3.pdf.
The Aussie's sell-off not only reflected the RBA's concern, but also speculation that tightening amid inflation concerns as the PBOC drained cash from the financial system in each of the two weeks after the holiday ending 15 February. Shanghai local stocks sold off more than 3% in today's trading.
Italian election deadlock
Last week's Euro move perfectly reflected the uncertainty in the Italian election. There can be no formal steps until the Italian Parliament reconvenes on 15 March. However, informal discussions on possible alliances between now and 15 March are expected.
There will be a few possible scenarios of final outcomes (roughly four) due to the complicated process. The anxiety and uncertainty could continue hovering around for a while. The yield spread clearly tells the story. The Italian/German 10-spread started surging at 242.84 at the end of January to the current 336.80. In addition, I noticed that the bond spread between the core and the rest.
To view Figure 4, please visit the following link: http://media3.marketwire.com/docs/fxp0305fig4.pdf.
The concern on the Italy-ECB relationship also arose on whether the ECB's capacity could reach the expectation. Since last year, the ECB did not spend a single cent on assistance to financial systems in indebted countries, and probably won't until countries such as Spain and Italy raise formal requests. However, the Euro Zone financial condition improved substantially recently after the June European Union (EU) Summit. It is not surprising since a top rule of investment is to not challenge what a central bank does; the Swiss National Bank (SNB) gave "CHF fans" a hard lesson in September 2011.
At this stage, I have not seen fundamentals change or there just might be more stability in the currency bloc. As growth remains subdued, manufacturing activities lack rebound signs because of less demand and employment remains at a historical high.
ABOUT MARIO SANT SINGH
Mario Singh is the Director of Training & Education at global retail Forex brokerage FXPRIMUS. 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, 17 Proven Currency Trading Strategies: How to Profit in the Forex Market. (Wiley Publishing).
FXPRIMUS offers retail traders a level of trade execution, service quality and fund safety that are normally reserved only for the largest investors. Serving traders in 205 countries across 6 continents FXPRIMUS combines an unmatched level of fund safety with regular independent audits of company financials and Straight Through Processing, top notch execution with tight spreads, prompt and responsive customer support, ISO 27001 certification in Information Security and an industry-leading trader toolset that includes free access to powerful trader tools and personal coaching via FXPRIMUS Coach. FXPRIMUS truly is The Safest Place To Trade.
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