- Markets calming on easier Cyprus budget terms and decent U.S., Chinese data.
- Fed speakers reiterating the case for continued Fed balance-sheet expansion.
- Focus today on Norwegian PMI and jobs data - ADP and non-manufacturing ISM in the US ahead of 'the big central bank day' tomorrow.
A little calm on markets yesterday
after Cyprus was granted two additional years (to 2018) to meet budget requirements, Italian policymakers started work on government programme proposals, and data showing U.S. factory orders rose a stronger-than-expected 3.0% in February and that China staged a rise in both of its two non-manufacturing PMIs in March. Notably, Italian, Spanish and Greek bond yields dropped markedly yesterday (by some 10-20bp) underlining that past weeks’ turmoil is retreating a little.
Loads of Fed talking with both Lockhart and Kocherlakota providing the case for further monetary easing when speaking on Tuesday. Overnight, Fed’s Evans (voter) and Lacker (non-voter) speaking at an event in Richmond debated the merits of the Fed’s QE programme, both repeating their well-known stances that the Fed must do more versus the potential negative consequences of the set-up, respectively. However, watch out for more Fed speeches later in the week with notably Bernanke and Yellen (potentially Bernanke’s successor) both speaking on Thursday ahead of the March FOMC minutes next week.
In equity markets the U.S. session generally saw small gains, whereas the Asian one has been somewhat mixed albeit Nikkei taking back some of yesterday’s lost territory, up around 2% at the time of writing on a JPY weakness, as the ‘new’ Bank of Japan convenes. U.S. bond yields slightly higher led by the long end with the 10Y and 30Y up 2bp at the close, thus reversing some of curve flattening seen in the past session. In FX markets, USD is also fighting back with gains against most other major currencies except AUD, which has been propped up by a smaller-than-forecast trade deficit in February. Overnight the uncertainty over who to head the Reserve Bank of Australia beyond Q3 was taken out of the equation as current governor Stevens was reappointed for three years; his term due to run out mid September just ahead of the country’s general election.
Today markets will likely stay sidelined in the absence of key events ahead of ‘the big central bank day’ tomorrow; see our ECB Preview: An instrument for SMEs, 2 April. for details on possible ECB outcomes and likely reactions in rates and EUR. We estimate the likelihood of a 25bp refi-rate cut to be around 25%.
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