Weekly Market Review - 25th March 2013‏

Cyprus dodged a disorderly default and unprecedented exit from the euro currency by bowing to demands to shrink its banking system in exchange for a 10 billion-euro ($13 billion) bailout. Cypriot President Nicos Anastasiades agreed to shut the country’s second-largest bank under pressure from a German-led bloc of creditors in a night-time negotiating melodrama that threatened to rekindle the debt crisis and rattle markets. It was the second time in nine days that Cyprus struck a deal with creditors and the International Monetary Fund, capping a tumultuous week that underscored the contradictions of the crisis management that has dominated European policymaking for more than three years.

Prime Minister Mariano Rajoy’s progress in curbing a deficit worsened by the cost of servicing Spain’s swelling debt load will be revealed this week with the release of data on the country’s finances. The Budget Ministry will tomorrow publish figures for February showing the central government’s budget shortfall, which accounted for more than half of the nation’s deficit in 2012. Data in the following days on mortgage loans, inflation and retail sales will also highlight the plight of the taxpayers financing those outlays.

China Construction Bank Corp. (939), the world’s second-largest lender by market value, posted better- than-estimated growth in fourth-quarter profit as higher lending income outweighed an increase in bad loan charges. Net income rose 16 percent from a year earlier to 35 billion yuan ($5.6 billion), according to Bloomberg calculations based on full-year figures released yesterday by the Beijing- based lender. The result exceeded the 34.5 billion-yuan average estimate of 29 analysts in a Bloomberg survey.

EUR/USD: The EUR/USD was trading higher at 1.30401 at the time of writing as sentiments were boosted on news that the finance ministers from the currency union approved a bailout plan for Cyprus, reducing the risk of a default and a disorderly exit for the nation. However, market participant should remain prudent as in the Federal Reserve Chairman Ben S. Bernanke is scheduled to speak at a conference sponsored by the London School of Economics at 5:15 p.m. London time. The U.S. central bank would alter its monthly purchases of $85 billion in bonds in response to gains in the job market, Bernanke said last week. The speech should be closely watched as they determine a short-term positive or negative trend and remain the key risk event for the pair today.

No major event is expected in the Eurozone apart from a few soft data the Spanish PPI (YoY) (Forecast: 2.5% - Previous: 2.6%), the Italian Consumer Confidence (Forecast: 85.5 – Previous: 86.0), the German 12-Month Bubill Auction and the French 12-Month/6-Month/3-Month BTF Auction. In the week ahead, investors should continue to closely monitor developments in Cyprus as a failure to reach a deal could see the country exit the euro zone. Other significant events likely to affect the markets are: Tuesday; Germany will produce data on retail sales, while the U.S will release a flurry of economic data with government reports on durable goods orders and new home sales as well as a report on consumer confidence. Wednesday; the euro zone will release preliminary data on consumer inflation and Italy will hold an auction of 10-year government bonds. Later in the day, the U.S will produce industry data in pending home sales and a government report on crude oil stockpiles. Thursday; Germany will publish official data on the change in the number of people employed. On the other hand, the U.S. will release the weekly government report on initial jobless claims and revised data on fourth quarter economic growth. Friday; the U.S. will release official data on personal spending and expenditure and revised data form the University of Michigan on consumer sentiment and inflation expectations. All these data will contribute in the volatility of the pair this week. The resistance level is at 1.31413 and the support level is at 1.28394 on the weekly chart.
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GBP/USD: The GBP/USD traded higher after the Bank of England damped speculation it will undertake additional economic stimulus measures that would debase the currency. The pair was trading at 1.52440 at the time of writing as sentiments remain bullish after Minutes of the March gathering showed Governor Mervyn King and two colleagues on the nine-member Monetary Policy Committee voted for a second month to expand the asset-purchase target and on hopes of progress on a deal for Cyprus eased concerns over the country's financial woes. However, Investors should remain very prudent after the Fitch ratings agency warned over a possible downgrade on the U.K.’s sovereign rating. In addition, a government report on March 27 will confirm that the British economy contracted 0.3 percent in the fourth quarter, while the next day, GfK NOP Ltd. will say March consumer confidence fell, according to Bloomberg surveys of economists.

Today, market participants should closely monitor the BBA Mortgage Approvals, in the UK, which is expected to come at 33.6K compared to 32.3K recorded previously. While in the U.S, the Federal Reserve Chairman Ben S. Bernanke will make a speech at a conference sponsored by the London School of Economics at 5:15 p.m. London time. The U.S. central bank would alter its monthly purchases of $85 billion in bonds in response to gains in the job market, Bernanke said last week. The data and news will bring volatility on the pair today. In the week ahead, other significant events likely to affect the markets are: Tuesday; the U.K. will publish a private sector report on retail sales, while the U.S will release a flurry of economic data with government reports on durable goods orders and new home sales as well as a report on consumer confidence. Wednesday; the U.K. will release final data on fourth quarter economic growth and a government report on the country’s current account. On the other hand, the U.S. will produce industry data in pending home sales and a government report on crude oil stockpiles. Thursday; the U.S. will release the weekly government report on initial jobless claims and revised data on fourth quarter economic growth. Friday; the U.S. will release official data on personal spending and expenditure and revised data form the University of Michigan on consumer sentiment and inflation expectations. Investors should remain prudent and adopt a wait and see strategy on the pair this week. The resistance level is at 1.53337 and the support level is at 1.51238 on the weekly chart.
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WTI (Oil): Oil rose a second day after Cyprus agreed on an international bailout, easing concern Europe’s debt crisis will worsen. Brent crude’s premium to WTI was near the narrowest since July. Cyprus agreed on the outlines of an aid package with the European Union, European Central Bank and International Monetary Fund. Money managers raised bullish bets on WTI in the week ended March 19, according to the Commodity Futures Trading Commission. The commodity was trading at 94.170 at the time of writing on bullish sentiments. Today, investors should closely monitor the key risk events for the commodity; the Federal Reserve Chairman Ben S. Bernanke speech at a conference sponsored by the London School of Economics at 5:15 p.m. London time to get visibility. The U.S. central bank would alter its monthly purchases of $85 billion in bonds in response to gains in the job market, Bernanke said last week. In the week ahead investors should close monitor developments in Cyprus as a failure to reach a deal could see the country exit the euro zone. Market participants will also be watching German data on retail sales on Tuesday amid concerns over the economic outlook for the euro zone and an Italian government debt auction on Thursday. Oil traders will also be looking ahead to a flurry of data from the U.S., including reports on durable goods orders, home sales and consumer confidence. All the data and news will bring fluctuations on the price of Oil. The resistance level is at 96.613 and the support level is at 90.850.