- A weak US employment report increased worries about a new soft patch.
- Long-end Treasury yields dropped significantly; the 10-yield is at its lowest for the year.
- JPY continues to weaken despite expectations of a Fed QE exit this year being scaled down.
In Portugal
, the constitutional court has rejected four austerity measures, considered essential to meeting mandatory deficit targets, as they were ruled unconstitutional – including planned cuts in public sector pay and state pensions. Portugal’s Prime Minister Coelho said the court’s rejection of the planned austerity measures poses a serious risk to Lisbon’s ability to comply with the adjustment programme, and its effort to regain access to international bond markets by a September deadline. The European Commission stressed that it was vital for Portugal to stick with the austerity measures agreed in the bailout terms; any renegotiation of the Portuguese programme would be counterproductive.
This morning, Japan recorded a bigger-than-expected current account surplus for February driven by overseas investment income. The trade deficit remains in place , as it takes time before the weaker yen impact exports while the effect on imports is felt immediately. In China, direct currency trading between the Australian dollar and the renminbi will begin this week. The Australian dollar will become the third currency to trade directly with the Chinese currency, alongside the US dollar and the Japanese yen.
U.S. treasuries yields declined further on Friday, following a weak US employment report, which adds to the general weakness in March economic data out of the U.S., pushing expectations of a scale back in the QE programme further. Combined with BoJ aggressive easing earlier in the week and a soft ECB, the U.S. curve flattened considerably over the week, with 10-year yields down 17bp and 30-year yields 25bp lower.
U.S. equity markets dropped 0.4% and European stock markets performed even worse. Sentiment in Asian trading has been mixed with the Nikkei boosted by the continued weakness in JPY, while the majority of the other major indices are lower fuelled by concerns about .bird flu as more cases were detected in China.
FX markets: The JPY continues to weaken as markets respond to the BoJ’s aggressive easing measures. The EUR/USD moved higher on Friday as expectations of Fed’s QE exit were scaled back. The EUR has held on to the gain overnight.
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