Risk Sentiments Solid As DOW Made Record High, Euro Vulnerable Ahead

DOW shrugged off weak consumer confidence data overnight, as investors focused mainly on the house price and durable goods . DOW closed at another record high of 14559 and the positive sentiments carried on to the Asian session. In forex markets, the euro remains soft against other major currencies even though various European officials denied that Cyprus is a model for other troubled peripherals. The common currency is vulnerable to another round of selloff as Italy, which is still in much political uncertainty, will auction as much as EUR 7b in bonds today, including up to EUR 3b in 10 year bonds. The dollar is mixed for the moment. Recent Fedspeaks were largely ignored by markets. Some Fed doves are scheduled to speak today including Boston Fed Rosengren, Minneapolis Fed Kocherlakota, Chicago Fed Evans and the moderate Cleveland Fed Pianalto. The impact on markets would likely be muted.

A number of European officials jumped out with conflicting comments to Eurogroup head Dijsselbloem, which said the Cyprus deal could be a model for other Eurozone countries. French president Hollande insisted that Cyprus was "the exceptional, specific, unique treatment". Spanish prime minister Rajoy said bank recapitalization should be done through ESM but not deposits. A European parliament member Hokmark said that bank "deposits will not be bailed-in until nearly all others tools are exhausted." ECB Executive Board member Coeure simply said that "Mr. Dijsselbloem was wrong to say what he said". ECB Governing Council member Nowotny also noted that Cyprus is a "special case" and "it is no model for other instances."

In US, New York Fed Dudley said that over the next three to six months, "if the U.S. economy continues to show signs of improvement that will be very, very important.” He noted that "the fiscal drag is at its most intense point today" and if the economy could "power through that" the second half of 2014 would be better. He noted that "significantly more restrictive " fiscal policy would lower GDP by 1.75% in 2013.

BRICS countries failed to agree on funding and location of a proposed joint development bank. Russian Finance Minister Siluanov said after a meeting with other BRICS finance ministers that "there is positive movement, but there is no decision on the creation of the bank." He noted "instructions will be given to speed up the process." It's reported that BRICS intend to inject an initial USD 50b into a new development bank aiming at reducing reliance on western financial institutions. However, there were disagreements on whether the five countries should share the contribution evenly by USD 10b, or by size of their respective economies.

Looking ahead, confidence indicators will be the main focus in European session, including German Gfk sentiment, and Eurozone confidence indicators. Swiss will release UBS consumption and KOF. UK will release Q4 GDP final. In US session, Canadian CPI will be the main feature with US pending home sales.