- U.S. equity markets closed with small gains - 10-Yyear treasury yield is back above 2%.
- Asian bourses are generally higher led by strong gains in Japan.
- USD/JPY is above 95 and EUR/USD has traded around 1.31.
- Focus today on U.S. nonfarm payrolls where the consensus expectation is +165k. Markets overnight
U.S. markets closed with gains and Asian bourses are generally higher following continued improvement in U.S. labour market data yesterday (four-week MA in initial jobless claims fell to 349k) and an upward revision to Q4 Japanese GDP overnight. Annualised growth was revised to 0.2% from a previous -0.4% and generally the growth outlook has improved in Japan.
The yen depreciation trend has gained traction again with USD/JPY trading well above 95 overnight. As in recent months this is supporting Japanese equities and the Nikkei index is up more than 2% at the time of writing – and up more than 40% since October. We still see potential for yen weakness and expect selling interest to remain in the market leading up to the April meetings.
Yesterday’s monetary policy meetings saw no changes to policy at the ECB or BoE (see Research: Data are soft – Draghi is not). However, while the euro has been able to hold on to its post-meeting gains – EUR/USD has traded around 1.31 overnight – sterling has weakened again and GBP/USD is trading back below 1.50.
While a rate cut had been discussed at the ECB the consensus was against this and overall ECB president Draghi did not sound that dovish. The EONIA curve steepened slightly and the euro saw support from tighter government bond spreads in Portugal, Spain and Italy. As we have argued in previous Danske Dailys, the key risk to the euro is not a refi rate cut, but a deposit rate cut, which is also the policy response that would have the biggest impact on the money market.
Here is how Draghi responded to the question of a negative deposit rate: “...we have looked at that and we do not commit to doing anything. The unintended consequences of a measure like that can be serious, as similar experiences in other monetary jurisdictions have shown. I think in the past I have described this as “uncharted waters”, which is all I can say on the matter.” From this, a negative deposit rate certainly does not appear to be the most likely first step if the ECB was to ease further.
To Read the Entire Report Please Click on the pdf File Below.