HispanicBusiness

To view the image associated with this press release, please visit the following link: http://media3.marketwire.com/docs/ISM1.jpg

Source: Bloomberg, FXPRIMUS

To view the image associated with this press release, please visit the following link: http://media3.marketwire.com/docs/INIT1.jpg

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.

To view the image associated with this press release, please visit the following link: http://media3.marketwire.com/docs/AUST1.jpg

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.