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Government and business leaders from Brazil, Russia, India, China and South Africa will gather in Durban, South Africa this week for the Fifth BRICS Summit. The theme of this year’s gathering of the world’s largest emerging markets is “BRICS and Africa: partnership for development, integration and industrialisation. Meanwhile, on the home front, economists and investors will focus on a series of domestic political events, economic data releases and market developments over the coming days. Here is your guide.
On Monday, the Fundação Getúlio Vargas (FGV) will release March’s consumer confidence data, a key indicator of the health and prospects for South America’s largest economy.
FGV’s confidence index deteriorated for the fifth consecutive month in February to its lowest level since January 2012. Analysts at 4CAST expect the sentiment gauge to have weakened further to 114.0 in March from 116.2 in February.
On Wednesday, economists and investors will watch for two inflation gauges, February’s manufacturing producer price index (PPI) and FGV’s general price index (IGP-M) data.
Analysts expect prices at the factory gate to have risen 8.50% from a year earlier in February, up from 7.69% in January. FGV’s general price index – the reference measure used to set the prices of public services – is expected to show a 0.25% monthly rise for the period between February 21 and March 20, down slightly from 0.29% during the same period in January/February.
On Thursday, markets will turn their attention to last month’s unemployment and budget figures.
Brazil’s jobless rate jumped to 5.4% in January from a record low of 4.6% in December. Consensus is that the jobless rate rose further to 5.8% in February, still low by historical standards.
A jump in tax revenues drove Brazil’s primary budget surplus – a measure which includes federal government, central bank and social security results – to a record surplus of 30.3 billion reais in January, but markets expect February’s surplus to narrow to 9.0-billion reais.
Brazil is expected to miss its primary surplus goal of 3.1% of gross domestic product (GDP) in 2013 for the second year in a row as lucklustre economic performance surpresses tax collections.
“We project a full-year primary fiscal surplus of 1.9% of GDP for 2013, which compares to last year’s 2.4%,” Itaú’s Macro Research Team wrote in a recent note.
With no major domestic data releases scheduled, the rapidly changing situation in Cyprus is likely to set the tone for Russian markets as the new trading week begins.
European leaders have given their Cypriot counterparts until Monday to come up with €5.8 billion in order to receive €10 billion in desperately needed aid. Without external assistance, the tiny country’s outsized banking system, which holds €68 billion in deposits, faces imminent collapse. Russia is heavily exposed.
According to a recent report by ratings agency Moody’s, Russian corporate deposits in Cypriot banks may have totalled as much as $19 billion as of September 2012. If these companies take losses on their deposits, or lose the ability to repatriate all or most of their funds, their ability to service debt at banks in Russia – who themselves had around $12 billion placed with Cypriot banks at the end of 2012 – could be diminished.
But the main “contagion channel” for Russian banks – including VTB Capital, Aton Capital, Otkritie Capital, Sberbank, Gazprombank, Promsvyazbank, UralSib Financial and BCS Financial – comes from a third source, loans to Cyprus-based companies of Russian origin.
“We estimate that these loans totalled around $30 [to] $40 billion at year-end 2012, or around 15% [to] 20% of Russian banks’ capital base. A potential Cyprus moratorium on external payments could block loan repayments to Russia, leading to some asset-quality pressures,” explained Eugene Tarzimanov, a Moody’s vice president, senior credit officer and author of the report.
According to the latest press reports, Cyprus has agreed to 20.0% tax on deposits over €100,000 at the Bank of Cyprus – the country’s number one lender – coupled with a 4.0% levy on deposits held in the country’s other banks to raise funds.
If these reports prove accurate, Russians would not be hardest hit by the scheme. According to the Bank of Cyprus’ latest results statement, only 5.0% of deposits in the bank come from Russia.
European finance ministers will meet Sunday night to consider the proposed deal. The Cypriot parliament must then approve the plan before the end of Monday to avoid a calamity.
Analysts expect low trading volumes in the shortened trading ahead to contribute to continued volatility. Markets in India will be closed on Wednesday for Holi and on Friday for Good Friday. In between, March future and options derivatives contracts will expire on Thursday.
India’s benchmark BSE Index fell 3.6% to a four-month low last week and the broader NSE Index fell 3.8%, its biggest weekly loss since December 2011, amidst mounting concerns that political instability and uncertain prospects for future rate cuts have diminished the country’s growth prospects.
The Dravida Munnetra Kazhagam party, the largest of nine parliamentary partners in prime minister Manmohan Singh’s governing coalition, withdrew its support last Tuesday over the government’s approach to alleged war crimes in neighbouring Sri Lanka. Many fear that the party’s withdrawal could exacerbate policy gridlock, undermining government efforts to cut fuel subsidies and improve the country’s finances in the run-up to next year’s general election.
DMK’s leader, Muthuvel Karunanidhi, said that the party may restore its support if his demands for a parliamentary resolution condemning Sri Lanka for alleged war crimes by its troops during battles with the Liberation Tigers of Tamil Eelam guerrillas are met. Markets will be on the look-out for signs that closed door discussions to patch the row are making progress.
Karunanidhi’s dramatic announcement came on the same day that the Reserve Bank of India (RBI) cut its key repo rate by 25-basis points to 7.5%. Although many welcomed the news, investors and businesses were troubled by the bank’s cautious stance on future policy easing.
India’s business community has been complaining that high interest rates are hampering growth but, in the outlook contained in the RBI’s mid-quarter monetary policy review, officials warned that the “headroom for further easing remains quite limited” in the face of stubborn inflation.
Chinese President Xi Jinping’s first official overseas trip as leader of the world’s second largest economy is likely to continue to generate headlines over the coming days.
The world’s fastest growing major economy is a voracious consumer of energy. Xi’s visit has already seen one energy deal consummated. More may materialise.
Xi arrived in Russia – the world’s biggest energy exporter – on Friday. His visit produced an agreement with state-owned energy firm Rosnet to gradually triple oil supplies to China – the worlds’ biggest energy consumer – in exchange for a $2.0-billion loan. The two countries also agreed to a preliminary deal to build a gas pipeline from Russia to China.
Xi left Moscow on Sunday for Tanzania. Recent discoveries have increased Tanzania’s estimated natural gas reserves to 10-trillion cubic feet. As in Russia, China had offered a $1.2 billion loan to build a pipeline from the southern part of the country to Dar es Salaam, Tanzania’s largest city.
After his visit to Tanzania, Xi will travel to the Republic of Congo, sub-Saharan Africa’s fifth largest oil producer.
China is in the process of completing a 500 kilometre road between Brazzavile – Congo’s capital and largest city – and seaside Pointe-Noire, one of the main oil producers of central Africa. The project follows China’s completion of the Imboulou Dam hydroelectric power station in 2011.
Over the last seven years, China has signed a series of agreements with Congo to collaborate on infrastructure development. Congo now ships half of its oil production to China.
Xi will conclude his first overseas trip with a visit to South Africa for the BRICS Summit on Tuesday.
Statistics South Africa (Stats SA) will release December’s tourism numbers and February’s business liquidations figures on Monday.
On Tuesday, the Bureau for Economic Research at the University of Stellenbosch will release the results of its first quarter building confidence survey.
On Thursday, the South African Reserve Bank (SARB) will release last month’s private sector credit extension and money supply data, last month’s international reserves and fourth quarter external debt figures. Stats SA will release fourth quarter financial statistics and producer price index (PPI) data. And the South African Revenue Service (SARS) will issue February’s preliminary trade numbers.
Growth in private sector credit – which has been in positive territory since May 2010 – slowed to 8.64% from a year earlier in January from 10.09% in December. Markets expect growth to have eased further, to 8.0%, in February.
M3 money supply growth accelerated to 6.75%, year on year, in January from 5.17% in December. Consensus is that money supply expanded by 7.06% in February.
Analysts expect SARS’ preliminary trade figures to show that South Africa’s trade deficit narrowed to $13.4-billion in February from a record $24.5 billion gap in the previous month.
Beyond this week’s data releases, South African consumers, businesses and investors will be keeping a close eye on the country’s exchange rate over the coming days. The rand has depreciated by more than 8.0% since the beginning of the year and fell to a four-year low of 9.3655 against the dollar on Thursday.
“The exchange rate of the rand continues to pose the main upside risk to the inflation outlook,” central bankers wrote in last week’s monetary policy statement.
A Reuters Econometer survey conducted in February showed the consensus forecast for the rand to dollar exchange rate at the end of 2013 is R8.61. Forecasts ranged between R9.19 and R7.80.