No Fears Materialise in 2012: Mario Sant Singh

For the Chinese economy, every indicator turned positive in the 4th quarter -which was also the period for the decade leadership transition, and the domestic benchmark equity index rallied around 15% in December. The fear of a hard landing lasted for nine months and vanished naturally.

In the Euro Zone, the currency and regional equities rallied in December with a move from the mid-year “fear position” to adding “buy positions” at the end of the year, as investors realized that “2012” was merely a movie.

In the United States, risk appetite generally extended and we saw some Greenback strengthening in the past few days – although it might just be profit taking or pricing out Quantitative Easing. And equities traders are extending the celebration of the deal made on Fiscal Cliff.

Last week, China’s manufacturing Purchasing Managers’ Index (PMI) stabilized at 50.6, the UK manufacturing PMI surged to 51.4, the Institute for Supply Management (ISM) manufacturing PMI rose to 50.7, the U.S. Non-Farm Payroll (NFP) expanded 155,000 jobs, and the Federal Open Market Committee (FOMC) December minutes showed that the Federal Reserve (Fed) had some discussion on Quantitative Easing (QE) withdrawal.

Key events this week include releases on Australian retail sales, China’s trade balance and Consumer Price Index (CPI), the UK official rate, and the European Central Bank (ECB) rate decision and press conference.

Said Mario, “In Europe, the market will focus the ECB’s rate decision and press conference. There is significant Euro downside if the ECB decides to cut the rate. However, the possibility of this happening is extremely low, as there isn’t too much a rate cut could do to help the current Euro Zone situation.

“I expect the Euro Zone might continue to stay in recession for at least the first half of the year. The good news is that there is no important news from the currency bloc.

“The ECB saved the Euro last year, not the fundamentals,” he explained. “We may not see progress on structural reforms, and topics may stay on confidence picking up or lowering. Before the European Stability Mechanism (ESM) kicks off or real fundamentals change, the Euro’s rally will cap somewhere and face some headwind to break the 1.33 level against the USD,” he said.

The Nikkei 225 Index made a more than a 20% rally in the past two months with upward momentum maintained on an ultra-loose monetary policy, as the market expected more monetary stimulus from the Bank of Japan (BoJ). The inflation target could rise to 2% from the previous 1%, and the index beat all major indices in December, including the Shanghai Composite Index.

“Some Bank of Japan top members could be replaced by March, said Mario, “thus there is a higher chance more fiscal stimulus will be implemented.”

“With the Yen depreciated to 88.15 against the USD, the current price seems enough to meet the inflation target, despite the10% rally,” he explained.