A very busy week for fundamental news across all the markets with the highlights including interest rate decisions from the Bank of Canada and the Reserve Bank of Australia followed by the ECB & the UK, all of which are expected to remain unchanged but as always the associated statements will be more interesting. The week, of course, rounds off with US non farm payrolls and unemployment data so a lively week of trading in prospect:
Australia
The trading week started in Australia with new home sales and the current account figures as the markets now await for four level 1 economic releases: the first of these on Tuesday is building approvals forecast to show a steep decline from last month’s 2.2%, down to 0.7%, a worrying trend should this be the case. Second we have retail sales which are expected to be positive at 0.8% giving us an improving picture from last month’s -0.7% so in contrast to building approvals a more positive outlook. The third release, and the most important, is the interest rate decision due on Tuesday as well with some analysts forecasting an increase from 3.75% to 4%, although this is far from certain. This is against the backdrop of last month’s decision when rates where expected to rise but the RBA held them on that occasion. The decision is accompanied by the associated rate statement which will be provide an insight into the decision. Should interest rates indeed rise then the Aussie will strengthen as a result, in particular against the Yen and US dollar.
Wednesday sees another big number with the release of the quarterly GDP figures which are forecast at 0.9% against a previous of 0.2% and again if these are on target, or better, should be positive for the Aussie dollar. Thursday sees the release of the trade balance figures which are forecast at -1.57 against a previous of -2.25 – an improving picture.
As a result of these important numbers we should see some dramatic moves in the Aussie crosses & if the forecasts are correct then we should see 92.50 on the Aussie Dollar.
China
The week started in China with PMI manufacturing figures which came in at 52 indicating an economy in expansion although well down on both February’s and January’s figures of 56.6 and 55.8 respectively so has recent Chinese monetary policy effected the slowdown it was hoping for? There have also been mutterings that China is now prepared to see the Renmibi rise – we shall see.
Eurozone
No tier one releases for Monday, Tuesday or Wednesday and we have to wait until Thursday when we have the ECB rate decision which is expected to remain at 1%. This is closely followed by the press conference, a closely watched event, which consists of 2 elements, the first of which is a pre-prepared statement followed by a question and answer session. The entire event is usually webcast on the ECB website with a small delay from the real time event.
United Kingdom
The week started early with the release of the manufacturing PMI data which came in flat month on month at 56.6 and fractionally better than forecast at 56.3. However, this release has been swamped by the avalanche of bearish sentiment towards sterling as a result of election uncertainty and the possibility that UK gilts will soon lose their AAA rating. Tuesday sees the release of the monthly Halifax housing data which is forecast to show a modest decline in house prices at 0.3% against a previous of 0.6%. Wednesday’s key data covers the services sector with the release of the PMI data forecast to show a small improvement to 55, up 0.5 from last month’s figure. However, this index appears to have peaked in December at 56.6 and has been on a downwards slide since suggesting the danger of a double dip recession.
Thursday is all about the BOE (Bank of England) with the interest rate decision and rate statement due at mid-day along with a statement about their asset purchase programme (QE), although the markets are expecting a further 200bn. This would be the fifth month in a row at this level. The week rounds off for sterling with PPI input data which represents the change in the price of goods and raw materials purchased by manufacturers and forecast at 0.1%, a steep decline from last month’s 2%.
Switzerland
The only major item for Switzerland is the GDP data due out on Tuesday and forecast to come in at 0.4% against a previous of 0.3% which continues the steady upwards trend following the four consecutive negative numbers of late 2008 and 2009. Market reaction to this number tends to be seen in the EURCHF which is moving relentlessly sideways although we could see the injection of some life once this data has been released.
Canada
An important day for Canada today which sees the release of GDP figures and uniquely to Canada are released on a monthly basis. The headline number is 0.4%, no change from last month, and appears to be holding firm. If the actual is better than forecast then we could see a strengthening of the loonie. On Tuesday we have the interest rate decision from the Bank of Canada who are expected to keep rates on hold at 0.25% but as always it is the accompanying statement that will be closely scrutinized.
Thursday sees two key releases: firstly with building permits which are expected to show a decline from last month, down to 1% from 2.4%. This is followed later in the trading session with the IVEY PMI index forecast to come in dramatically higher at 56, significantly up on last month’s 50.8. As a leading indicator it is closely watched and anything above 50 is taken as an economy in expansion.
United States
Today starts in the US with the ISM numbers, expected to come in at 57.7, marginally lower than last month’s 58.4. The ISM is an important release as it measures the relative level of business conditions and is based on a survey of around 400 purchasing managers and generally considered a leading indicator. If the actual is better than forecast then this should be good news for the dollar.
Tuesday is a quiet day in the US with the next major releases due out on Wednesday which include ADP and ISM non manufacturing. The ADP data generally provides the market with a good guide to the non farm payroll numbers on Friday as it is based on actual payroll statistics, and the forecast is for -13k against a previous of -22k indicating a gradually improving picture. Later in the US session we have the non manufacturing PMI data which again shows a marginally improvement picture at 51 against a previous of 50.5.
Thursday continues the labour market theme with the weekly unemployment claims which are expected to show a modest decline from 496k last time to 472k this time around. Later on we have the month on month pending home sales which are forecast at 1.4%, up from last month’s 1% – which if confirmed should be good news for the US dollar. The week rounds off on Friday with non farm payroll which still remains obstinately below positive territory with a forecast of -40k against a previous of -20k, coupled with an unemployment rate which has risen fractionally from 9.7% to 9.8%.
Market Watch for this week:
The VIX fear index continues to slide lower which is usually considered positive for equities and is currently sitting at 19.5 and well below the peak of November 2008 when it reached the dizzy heights of 82. The current trend for the indicator remains bearish and the danger signals will start to appear once the index reaches 16 or below so we still have some way to go in the equity markets to the bull side.
The dollar index closed February breaking fractionally above all three moving averages and confirming the bullish engulfing signal of late 2009 once again. The weekly chart confirms this optimistic view with prices breaking and holding above the 200 week moving average with the 9 and 14 week crossing above the 40 to add to the bullish sentiment for the US dollar as the index broke above 81 in the early London session.
Elsewhere sovereign debt levels both in absolute and relative terms are likely to be a problem for many governments as they are forced into de-leveraging positions as a result of the excesses of the banking industry. The forex market continues to be over extended in several areas so we are likely to see corrections in March. Treasury yields are likely to continue their recent declines with many being forced to seek safer havens.
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