Weekly Market Review: Outrage in Cyprus

Sales of previously owned homes and construction of new houses probably accelerated in February, highlighting the strength in residential real estate that’s helping propel the U.S. expansion, economists said before reports this week. Purchases of existing properties increased to a 5 million annual rate, the strongest since November 2009, and housing starts rose to a 915,000 pace, according to the median forecasts in a Bloomberg survey. Other data may show an index of leading economic indicators advanced for a third straight month.

Australia faces a “massive hit” to government revenue, pushing the nation further into deficit ahead of an election in September, Treasurer Wayne Swan said. The national budget fell a further A$4.6 billion ($4.8 billion) into deficit in the first four weeks of 2013, taking the total shortfall to A$26.8 billion for the first seven months of the financial year, according to Treasury figures released by the government March 15. Just three week ago, Swan predicted a reduction in revenue would add just A$2 billion to the deficit in January.

New Zealand’s most widespread drought in at least 30 years may cost NZ$2 billion ($1.7 billion) as dry conditions across the North Island threaten economic growth, the government estimates. “The latest advice is that somewhere between $1 billion and $2 billion will be knocked off our national income, and as every week goes by, the prospect of it being $2 billion instead of $1 billion grows,” English said in an interview on TVNZ’s Q+A program yesterday. “We’ll be getting updated advice over the next few weeks from the Treasury as we prepare the forecasts for the next budget in the middle of May.”

Europe braced for renewed turmoil as outrage in Cyprus over an unprecedented levy on bank deposits threatened to derail the nation’s bailout. The euro tumbled. Cypriot President Nicos Anastasiades, who bowed to demands by euro-area finance ministers to raise 5.8 billion euros ($7.6 billion) by taking a piece of every bank account in Cyprus, appealed to lawmakers in Nicosia to ratify the levy today. The vote was delayed from yesterday over the opposition of the European Central Bank amid talks to restructure the levy.

EUR/USD: The EUR/USD traded higher on Friday after data in the U.S. showed that the University of Michigan’s consumer sentiment index dropped to 71.8 in March, the lowest level since December 201. Today, the pair was trading lower at 1.28928 at the time of writing as sentiments were hit after an unprecedented levy on bank deposits in Cyprus threatened to derail the nation’s bailout and spark a new round in Europe’s debt crisis. Cypriot President Nicos Anastasiades, exhorted political factions to support the deposit levy, which he pledged is a one-off measure that will avert a collapse of the financial system that in turn would have led to the country’s exit from the euro.

The levy -- as of now 6.75 percent of all deposits up to 100,000 euros and 9.9 percent above that -- whittles the euro- area’s bailout of Cyprus to 10 billion euros, down from an original figure of about 17 billion euros, near the size of the nation’s 18 billion-euro economy. Euro finance ministers reached agreement early on March 16 after 10 hours of talks. Cypriots awoke to find bank transfers already frozen as the government prepared to impose the tax before banks reopen tomorrow. Today’s bank holiday in Cyprus may be extended by at least one day, state-run broadcaster CYBC reported, without saying where it got the information. Market sentiments remain fragile on the EUR and lots of fluctuations are expected on the pair. Other events likely to bring volatility on the pair this week are; Monday; the euro zone will publish official data on the trade balance. Tuesday; the ZEW Institute will release its index of German economic sentiment.

On the other hand, the U.S. will release official data on building permits and data on housing starts. Wednesday; the Germany will release official data on producer price inflation and hold an auction of 10-year government bonds. Later in the day, the Federal Reserve will announce the federal funds rate and release its rate statement and quarterly economic projections. The announcement will be followed by a press conference with Fed Chairman Ben Bernanke to discuss monetary policy and the economic outlook. Thursday; the euro zone will produce preliminary data on manufacturing and service sector activity, while Germany and France will also release individual reports. In addition, France will hold an auction of 10-year government bonds. On the other hand, the U.S. will release the weekly government report on initial jobless claims, as well as industry data on existing home sales and official data on manufacturing activity in Philadelphia. Friday; the Ifo Institute will release a report on German business climate. Market participants should remain very prudent when dealing on the pair. The resistance level is at 1.311314 and the support level is at 1.27991 on the weekly chart.
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NZD/USD: The NZD/USD traded higher on Friday as U.S. inflation data indicated that the Federal Reserve had sufficient scope to continue its quantitative easing program. Today, the pair was trading flat at 0.82416 at the time of writing as investors jumped on the sidelines as the unprecedented levy on Cypriot banks raised concern a new round in Europe’s debt crisis will damp demand for higher-yielding assets. Market sentiments remain fragile on the NZD as New Zealand’s most widespread drought in at least 30 years may cost NZ$2 billion ($1.7 billion) as dry conditions across the North Island threaten economic growth, the government estimates. Volatility is expected on the pair this week.

Events likely to affect the pair this week are; Tuesday; the U.S. will release official data on building permits and data on housing starts. Wednesday; in the U.S., the Federal Reserve will announce the federal funds rate and release its rate statement and quarterly economic projections. The announcement will be followed by a press conference with Fed Chairman Ben Bernanke to discuss monetary policy and the economic outlook. On the other hand, New Zealand will publish official data on fourth quarter economic growth. Thursday; the U.S. will release the weekly government report on initial jobless claims, as well as industry data on existing home sales and official data on manufacturing activity in Philadelphia. Market participants will need to monitor all the data and news in the Eurozone to better assess the trend of the pair as these news and data will affect market sentiments for risky assets. The resistance level is at 0.83481 and the support level is at 0.81558 on the weekly chart.
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WTI (Oil): Oil traded higher Friday after upbeat U.S. economic data added to the view that the nation’s recovery was gaining momentum, lifting hopes for higher oil demand. Today, the commodity was trading lower at 92.360 as an unprecedented bank levy by Cyprus on bank savings threatened to worsen Europe’s debt crisis. Libya shut a crude pipeline after protests. Cyprus bowed to demands by euro-area finance ministers to raise 5.8 billion euros ($7.6 billion) by taking a piece of every bank account, sending the euro tumbling and sparking public outrage that may derail the nation’s bailout. The closing of the Waha Oil Co. pipeline after a strike by fuel-truck drivers cut Libyan crude output by 120,000 barrels a day, according to Oil Minister Abdulbari al-Arusi.

Other news is that crude will fall to about $88 a barrel in two years as oil output in the U.S. increases and demand in the world’s biggest consumer of the commodity slows, Fereidun Fesharaki, the chairman of FGE, an energy consultant, said in a Bloomberg television interview today. Saudi Arabia and Iraq raised crude exports in January for the first time in three months as demand from Asian countries climbed, according to data on the website of the Joint Organisations Data Initiative yesterday. The Saudi kingdom shipped 7.09 million barrels a day, up 30,000 from December. Iraq, the second-biggest producer in the Organization of Petroleum Exporting Countries, increased daily exports by 10,000 barrels to 2.36 million, the data showed. In the week ahead investors will be focusing on Wednesday’s Federal Reserve policy statement, amid speculation over an earlier-than-expected end to the bank’s asset purchase program. Fed Chairman Ben Bernanke will give a press conference after the release of the policy statement. Investors should also closely monitor data and news in the Eurozone and China for more visibility. The resistance level is at 94.414 and the support level is at 90.769 on the weekly chart.