- US economy continues to show signs of improvement.
- Asian equity markets are mixed to lower overnight following small gains in the US.
- BoJ keeps policy unchanged as leadership is about to change.
- All focus is on the ECB and BoE but the consensus expectation is for no change.
The US economy continues to show signs of improvement, to the degree that markets are pricing a strong enough underlying growth to sustain the negative effects from recent tax hikes and reduced government spending.
The Fed’s Beige Book showed that most districts saw economic activity expand at a modest to moderate pace (see full report) and a better-than-expected ADP report (+198k versus 170k expected) indicates that jobs are also being created. The strong ADP reading is likely to have seen expectations rise somewhat ahead of tomorrow’s non-farm payrolls report. Sentiment did also improve slightly during US trading and both the Dow Jones and S&P500 index closed with small gains.
The Bank of Japan kept policy settings on hold overnight at governor Shirakawa’s final meeting. This was more or less expected and USD/JPY only corrected slightly lower after having traded above 94 in US trading. Supporting the JPY depreciation trend are expectations that Haruhiko Kuroda will announce new aggressive easing measures – most likely at the April meeting. How easy it will be for Kuroda to find support within the BoJ is questionable, but it is worth noting that Sayuri Shirai proposed open-ended easing and that Ryuzo Miyao proposed that the bank make a firmer pledge to achieve its inflation target. The Nikkei index is up marginally in overall mixed Asian trading.
The EUR/USD has traded as low as 1.2965 ahead of today’s ECB meeting (see preview on page 2), and it appears that the currency market is pricing a non-zero probability of a rate cut. GBP/USD also remains low and has traded around 1.50 overnight, indicating that also the BoE is seen as having potential to surprise markets today.
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