Risk Markets Stabilized, Euro Firm

Risk markets stabilized overnight as DOW recovered strongly by 157 pts, or over 1%. Asian equities followed, and opened broadly higher. Gold recovered after dropping to 1321 and breached 1400 handle briefly but it seemed that it's finding selling pressure above there. The EUR has been strong this week in spite of risk aversion. Yesterday's rally in EUR/USD and EUR/GBP suggests both have near term bullish implication and more upside ahead. Yen crosses' recovery continued in Asian session today, but we'd expect strong resistance from last week's high to limit upside. After all, the yen should stay in sideways consolidation for a while. The dollar is mixed as it's firm against commodity currencies, but soft against European majors and yen.

In a report published yesterday, IMF lowered global growth forecast to 3.3% in 2013, down from January's projection of 3.5%. Nonetheless, global growth forecast was left unchanged at 4% in 2014. The IMF noted that "global prospects have improved again, but the road to recovery in the advanced economies will remain bumpy," and urged "policy makers cannot afford to relax their efforts." U.S. growth projection in 2013 was revised to 1.9%, down from 2.1%. The U.S. is expected to grow 3% in 2014. Eurozone economy is expected to contract -0.3% this year, and grow 1.1% in 2014. Canada is expected to grow 1.5%, down from the prior projection of 2%.

While IMF expected Germany to growth by 0.6% in 2013, France is expected to contract by -0.1%. Spain and Italy are both expected to contract by -1.5%. It noted that "activity in the euro area will pick up very gradually, helped by appreciably less fiscal drag and some easing of lending conditions." Chief economist Blanchard urged Europe to "do everything it can to strengthen private demand," with "aggressive monetary policy and getting the banking system to be stronger.".

The IMF expects 2013 growth to be 1.6% and 2014 growth to be 1.4%, up from prior projection of 0.4% and 0.7% respectively. It also expects 0.1% inflation in 2013 and 3.0% inflation in 2014. If that happens, the BoJ would be overshooting its 2% inflation target. The IMF noted that "after many years of deflation, and little or no growth, the new government has announced a new policy, based on aggressive quantitative easing, a positive inflation target, fiscal stimulus, and structural reforms," and "this policy will boost growth in the short term". Chief economist Blanchard said that BoJ's policy is "appropriate" even though yen has "depreciated by a large amount over the recent past". But he warned that "given the very high level of public debt, embarking on the fiscal stimulus in the absence of a medium-run fiscal consolidation plan is risky."

On the data front, the New Zealand CPI rose less than expected by 0.4% qoq in Q1. Australia Westpac leading indicator rose 0.6% mom in February. Japan consumer confidence rose less than expected to 44.8 in March. The U.K. will be the main focus in the European session, with BoE minutes and employment data featured. The BoC will announce rate decision today, and is expected to keep rates unchanged at 1.00%. The Fed is slated to release the Beige book economic report.