Press review - page 123

[Sergey Golubev]

Fitch Retains China's 'A+' Rating

Fitch Ratings maintained China's sovereign ratings and 'stable' outlook on Friday, citing strong external balance sheet and the less volatile economic growth.

Fitch affirmed China's long-term foreign and local currency Issuer Default Ratings at 'A+'. The 'stable' outlook reflects Fitch's view that upside and downside risks to the rating are balanced.

The sovereign external balance sheet is China's core sovereign credit strength. China's foreign reserves rose to $3.82 trillion at end-2013. This was equal to 19.2 months of current external payments.

China's growth model faces tightening constraints from the rapidly increasing burden of leverage in the economy and from the deteriorating ability of the economy to absorb additional investment profitably.

According to Fitch, China's GDP growth would remain less volatile out to 2015 than the 'A' range median in Fitch's projections. However, the re-balancing process entails some risk of sharply higher volatility if things go less smoothly than Fitch expects.

Further, Fitch estimates the level of aggregate financing in China's economy at 217 percent of GDP at end-2013, up from 198 percent at end-2012. The authorities acted more aggressively to contain risks to financial stability since mid-2013.

However, fundamental credit weaknesses, including low average incomes and weak scores for governance, weigh on the credit profile relative to 'A' range peers.

[Sergey Golubev]

2014-04-04 12:30 GMT (or 14:30 MQ MT5 time) | [USD - Non-Farm Employment Change]

• past data is 197K
• forecast data is 200K
• actual data is 192K according to the latest press release

if actual > forecast = good for currency (for USD in our case)

==========

[Sergey Golubev]

2014-04-04 12:30 GMT (or 14:30 MQ MT5 time) | [CAD - Employment Change]

• past data is -7.0K
• forecast data is 20.0K
• actual data is 42.9K according to the latest press release

if actual > forecast = good for currency (for CAD in our case)

==========

[Sergey Golubev]

What Does The Future Hold For Gold? (based on forexminute article)

Traditionally, the value of gold fluctuates with market sentiment. In times of military or geopolitical unrest, traders and investors buy gold and sell the more risky currencies to seek refuge in the safe haven asset. Conversely, when all is well in the markets and traders' and investors' perception of a nation's economic outlook is positive, gold generally depreciates versus the more risky assets.

The yellow metal has gained strength for the majority of the year, sustaining a considerable uptrend, likely fuelled by the ongoing situation in Crimea, gold topped out at 1,392.00 on March 17. Since then, the XAUUSD has traded to two month lows at 1.277.26, and now sits slightly higher at 1,299.44. A number of fundamental factors will likely decide the medium term outlook for the price of the precious metal.

The first is the aforementioned situation in Crimea. The tension looks to have reduced, as Putin withdrew troops from the Ukrainian border, and the markets look to have responded accordingly. However, the sanctions on Putin's Russia remain, and are set to be tightened for as long as Russia lays claim to Ukraine. At some point, one or the other parties will have to compromise, something that, at present, neither seems willing to do.

The second is the potential for a slowdown in China. As disappointing economic data continues to pour out of the Asian superpower, global markets become increasingly concerned of the ripple effect such a slowdown might create. China has large levels of foreign investment across a huge number of industries worldwide, and a slowdown would stem capital flow to these investments. This could switch sentiment, and drive up the price of gold.

Finally, Janet Yellen recently hinted at an interest rate hike. This would, in the medium term at least, afford US dollar safe haven status. Such an event would likely redirect the capital of risk averse investors from gold to the US dollar, and in turn, drive down the price of the precious metal.

[Sergey Golubev]

China’s Foreign Exchange Watchdog Expects Country to Hit Current Account Surplus

The Chinese foreign exchange regulator announced on Friday that the nation’s current account will most likely remain in surplus in 2014; while it expects more capital outflows and inflows into the economy as Beijing moves in to implement its exchange rate reforms.

China’s current account, its widest gauge of trade with its partners such as U.S., hit a surplus totalling $182.8 billion in 2013, a decline of 15 percent from a year ago, according to the State Administration of Foreign Exchange in a statement posted on its website.

The surplus equals 2 percent of the country’s gross domestic product, a decline of 0.6 percent from a year ago, reported SAFE, according to Wall Street Journal.

The surplus in 2014 will likely be a major contributor, while surplus as a proportion of the GDP will remain at low levels, said SAFE. China’s trade surplus measured $259.8 billion in 2013.

SAFE announced that it will shift its focus towards minimizing risks from cross-border capital movements this year, and two-way capital flows will possibly rise as the yuan rate slowly edges towards the government considers an equilibrium level.

The financial and capital account, which incorporates investment, reached a surplus of $326.2 billion in 2013.

A separate statement issued on Friday showed that the regulator had revised slightly upwards the forecasts of the China’s current account surplus in the fourth quarter of 2013 to 44.0 billion from a surplus of $40.4 billion.
In the fourth quarter the revised forecast of financial account and capital totalled a surplus of $127.0 billion, up from a prediction of $81.0 billion.

[Sergey Golubev]

EURUSD Fundamentals (based on dailyfx article)

Fundamental Forecast for Euro: Bearish

• The Euro saw its highs early in the week but was generally weaker into the ECB rate decision.
• The ECB rate decision carried a heavy dovish connotation, leading to bearish opportunities in several EUR-crosses.

[Sergey Golubev]

GOLD Fundamentals (based on dailyfx article)

Fundamental Forecast for Gold: Neutral

• Gold and Silver Face Breakouts On Surprise NFP Print
• Gold Holding on to 1280 for Dear Life

[Sergey Golubev]

USDJPY Fundamentals (based on dailyfx article)

Fundamental Forecast for Japanese Yen: Neutral

• Japanese Yen Pairs Rally Over-Extended Ahead of BoJ

• USD/JPY at Top of Near Term Channel; Caution Warranted
  
  

[Sergey Golubev]

GBPUSD Fundamentals (based on dailyfx article)

Fundamental Forecast for Pound: Neutral

• Interest rates have been key to the sterling’s performance, which is seen in its strength vs JPY and weakness vs NZD
• With the yield forecast so high, each piece of data can undermine bullish hopes

[Sergey Golubev]

Forex Weekly Outlook April 7-11

The US dollar gained against most currencies and the euro was on the back foot in a busy week. And now, rate decisions in Japan and the UK, Australian employment data and the FOMC meeting minutes of Yellen’s first decision are the highlights of this week. Here is an outlook on the main market-movers ahead.

The all-important US Non-Farm Payrolls, slightly disappointed with a 192,000 jobs gain in March. The expectations were high since the winter storms were over and a strong rebound was anticipated. Nevertheless, the release still indicates recovery and consists of encouraging details. The taper train remains on track. Mario Draghi sent the euro lower on more dovish rhetoric and despite a lack of action. Is the ECB serious about QE? In the UK, PMIs weighed on the pound, and the loonie finally staged a recovery after a great Canadian jobs report. More volatility ahead? Let’s start:

1. Japan rate decision: Tuesday. The Bank of Japan maintained its accommodative monetary policy for the sixth consecutive month, to help the ongoing growth trend in Japan’s economy. Deflation fears have subsided while the BOJ strives to achieve a 2% inflation rate. The bank also upgraded its assessment on capital investment amid a pick-up in business activity. This is the first decision of the BOJ after the sales tax hike and it comes in the one year anniversary of Kuroda’s monetary blitz.
2. US JOLTS Job Openings: Tuesday, 14:00. The US economy increased its Job openings to 3.974 million in January from December’s revised print of 3.914 million. However the reading was below market forecast of 4.015 million. The hiring rate and separation rate remained nearly unchanged at 3.3% and 3.2%, respectively. The Federal Reserve’s new chair Janet Yellen highly regards JOLTS Report as a good indicator for hiring in the US economy. Jobs openings in February are expected to reach 3.99 million.
3. FOMC Meeting Minutes: Wednesday, 18:00. These are the meeting minutes of Yellen’s first decision, in which a third taper of QE to $55 billion was announced and forward guidance was dropped. More importantly, markets will look for hints about the timing of a rate hike, something that was conveyed by Yellen in the press conference with the 6 months comment and ignited a dollar rally.
4. Australian employment data: Thursday, 1:30. The Australian economy increased its labor force by 47,300 jobs in February, following 18,000 climb in January. The reading topped market forecast of 15,300 job addition. However the unemployment rate remained unchanged at a decade high of 6%. Full-time employment edged up by a staggering 80,500 but was offset by a drop in part-time workers. Despite a positive reading, both the RBA and the Treasury believe the unemployment rate will rise in the coming months as the economy struggles to transition from a fading mining investment boom to broader based growth. Australian economy is expected to add 14,300 jobs while the unemployment rate is predicted to remain 6%.
5. UK rate decision: Thursday, 11:00. The BoE maintained its rate at a five –year low of 0.5%, in March. The Monetary Policy Committee decided to reinvest 8.1 billion pounds of proceeds from government bonds the Bank bought through its quantitative easing program and which are due to mature in March. The pick-up in recovery witnessed in recent months forced the central bank to reinvent its forward guidance policy. BoE last month broadened the focus of the guidance towards a wider assessment of spare capacity, or slack in the economy, to refrain from raising rates or tightening monetary conditions and also indicated that the first rate hike could come in the second quarter of 2015. No change in rates is expected.
6. US Unemployment Claims: Thursday, 12:30. The number of Americans filing initial claims for unemployment benefits edged up more than expected last week, reaching 326,000, however the general trend indicates the Us labor market is continuing to improve. The 16,000 addition compared to the previous week increased the four-week moving average to 319,500. Despite this relapse, the number of claims has been generally stable in March suggesting acceleration in the US job market. Claims are expected to decline to 314,000.
7. G20 Meetings: Thu-Fri. G20 meetings taking place in Washington DC are attended by finance ministers and central bankers from 20 industrialized nations including the G7 nations – Canada, Italy, France, Germany, Japan, the UK, and the US. The discussions are closed to the press but officials usually give statements to reporters after the meetings have been concluded.
8. US Federal Budget Balance: Thursday, 18:00. The federal expenses generally increased in February, but this year the increase was 32% lower than last year. February’s budget deficit reached $193.5 billion compared to the $203.5 billion posted in February 2013. In the five months of the government’s fiscal year, the total is up to $377.5 billion, 24% smaller than last year. The good news is that the deficit has improved to where it’s running at about 3% of GDP, the normal 40-year average. US Federal budget deficit is expected to improve to -$127.5 billion.
9. US PPI : Friday, 12:30. Prices of finished goods fell slightly in February, down by 0.1%, following a 0.2% rise in the previous month. Analysts expected a 0.2% increase. On a yearly base, producer prices rose 0.9%, the smallest 12-month increase since last May. The recent drop suggests, inflation remains low. However, Fed officials have expressed concern about the persistence of low inflation. If it remains below target, the Fed may stop scaling back its stimulus measures. A rise of 0.1% is expected this time.
10. US UoM Consumer Sentiment: Friday, 13:55. U.S. consumer sentiment declined in March to 79.9 from 81.6 in the prior month, the lowest level since November 2013. Economists expected the index to rise to 81.9. Meanwhile, Conference Board consumer confidence report edged up to 82.3, the highest since 2008 but relied mostly on consumers’ expectations. Consumer sentiment is expected to rise to 81.2.