• Tomorrow all eyes will be on the BoJ meeting (Bloomberg economist survey expects neither QQE add-on, nor further rate cuts).
• On 15-16 March the FOMC will be meeting with no hikes priced in until June according to fed fund futures, but focus will be on the summary of economic projections – will the dot plot, pointing to 4 hikes this year, drop?
• Finally, the BoE meets on Thursday (likely a non-event with the bank taking a wait-and-see stance ahead of the EU referendum).
Key Takeaways:
Central banks monopolizing the agenda
• The ECB-driven delayed risk-on on Friday spilled over into this week, with European equities rallying ~90 bps driven by cyclicals following a strong session in Asia overnight.
• Notably, the euro failed to weaken much vs the dollar following the ECB announcement last week, stabilizing at just above 1.11, as markets perceived Draghi’s hint on Thursday to not cut rates further as a shift in focus from using currency weakening as a transmission mechanism to credit-specific measures.
Sentiment in Europe was supported by a strong Eurozone industrial production release this morning. On politics, Merkel’s CDU faced a setback in 2 out of 3 states in regional elections over the weekend as voters supported the Greens (who hold a similar stance to CDU on refugees) and AfD (who focus on anti-immigration rhetoric).
Oil is reversing its recent rally at the time of writing on the news that Iran is looking to increase production to pre-sanction levels.
Egypt has devalued its currency, announcing a more flexible FX rate going forward, in response to a dollar shortage. The move has fueled a rally in Egyptian equities (up 6.7%).
China A and H shares outperformed in Asia overnight (up 1.8% and 1.5% respectively), with investors ignoring weaker industrial production and retail sales and focusing on the news that officials are looking to support the stock market. Brokerage names outperformed overnight.