Quiet start to the week with no tier-1 data released

Market movers today

• Quiet start to the week with no tier-1 data released. Italian industrial production and the euro sentix survey are the only releases and are unlikely to have a market impact.

• Focus this week turns to new Fed chairman Janet Yellen's semi-annual testimony on monetary policy before the House's financial committee on Tuesday and before the Senate Banking Committee on Thursday. We believe she will signal that the Fed is likely to continue tapering asset purchases but will be flexible and monitor labour market developments very closely.

• Rest of the week main releases will be US retail sales (Thursday), euro-area Q4 GDP (Friday) and Chinese inflation (Friday).

• Danish inflation has probably risen, while inflation in Norway is likely to have remained relatively high. For more on Scandi markets see page 2.

Selected market news

In her first public interview Daniele Nouy, head of the euro-zone's Single Supervisory Mechanism (SSM), said that the ECB’s upcoming health check of the region’s biggest lenders would need to see some institutions fail to be credible. ‘We have to accept that some banks have no future (...) we have to let some disappear in an orderly fashion, and not necessarily try to merge them with other institutions’. The SSM, which will operate as the supervisory section within the ECB, will take on responsibility of the euro-zone’s 130 largest lenders in November.

In its quarterly monetary policy report released on Saturday, the People's Bank of China (PBOC) signalled that volatility in money-market interest rates will persist and borrowing costs will rise, underscoring the risk of defaults in the financial system that could weigh on confidence and drag down growth. PBOC's attempts to curb risky lending in the shadow banking sector by draining liquidity from the interbank market have triggered repeated cash crunches that have roiled financial markets, most recently in January (see Chinese Credit Crunch Monitor, 28 January 2014).

Data released overnight showed that Japan for the third month in a row had a negative current account. For 2013 as a whole Japan posted a JPY3.3trn surplus (USD32bn, 0.5% of nominal GDP), the smallest current account surplus in comparable data available from 1985. This suggests that exporters have failed to reap the benefits of a weaker JPY and there are tentative signs that Japan could be moving towards a more structural current account deficit.