- Italy's centrist parties seem to have reached last-minute deal on presidential candidate
- Weidmann comments add to odds for an ECB rate cut
- Aggressive BoJ easing triggers investor outflow
- Sentiment swings back to risk-off
Italy’s centrist parties seem to have reached a last-minute deal on a presidential candidate
. According to the Financial Times, a last-minute deal has been reached between Bersani's centre-left democrats and Berlusconi’s People of Liberty centre-right party to back the candidacy of Franco Marini. Mr Marini, an 80-year old former speaker of the senate, is close to the Catholic wing of the Democratic party and viewed by some as representing the ‘old regime’. He is unlikely to receive the backing from current caretaker prime minister, Mario Monti. His candidacy may pave the way for a grand coalition between the centrist parties, though it may split the centre-left.
Weidmann comments add to odds for an ECB rate cut. In an interview with the Wall Street Journal, Bundesbank President Weidmann said that the ECB could cut rates if incoming data suggest it is warranted. The idea of a rate cut seems to be spreading also to the hawkish members of the Governing Council. According to our euro economists, the current weak economic data is not enough in itself to trigger a rate cut. However, given the recent softness in Chinese and U.S. economic data as well as the lower commodity prices, a rate cut at the next ECB meeting is the most likely outcome.
Selling of foreign bonds by Japanese investors slows. Overnight, data were released on Japanese institutional investor flows into foreign bonds and stocks for the second week of April. According to the data, net selling of foreign bonds slowed to JPY0.3trn from JPY1.1trn in the previous week. These are the first data covering the period after the BoJ announced it would double its holdings of JGBs in two years, buying JPY7.5trn worth of bonds every month. While selling of foreign bonds slowed, the data do not provide firm evidence that recent BoJ action has caused Japanese investors to drastically step up their holdings of foreign bonds. The data series is quite volatile, and the recent decline in foreign bond selling could be due to portfolio rebalancing.
Sentiment swings back to risk-off. After rebounding on Tuesday, risky assets reversed course again on Wednesday. The key U.S. stock indices fell 1% or more driven by disappointing earnings results (Bank of America, JP Morgan Chase), although weakness in European markets is also likely to have contributed to the sell-off. The Euro Stoxx index fell for a fourth straight day. Despite the sizeable losses on equity markets, U.S. Treasuries only saw modest gains with further upside potentially limited by the upbeat tone of the Beige Book. On the FX market, the slide lower in theEUR/USD resumed as risk sentiment retreated following Weidmann’s comments.
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