Nikkei is down 1.3% at the time of writing

Market Movers

• US mortgage applications is the only key data release today.

• Markets are in wait-and-see mode ahead of the all-important ECB meeting tomorrow with the rate decision at 13:45 CET and the press conference starting at 14:30 CET. We expect the ECB to cut the deposit rate by 10bp to -0.4%, to introduce a two-tier deposit rate system aimed at reducing the cost to the banking sector and to signal that the deposit rate can go even lower. We also look for the ECB to front-load the QE purchases by EUR20bn p/m in spring to signal willingness to support inflation.

• Bank of Canada will announce its rate decision at 16.00 CET. There is a strong consensus that the policy rate will be kept unchanged at 0.5%.

Selected Market News

The weak Chinese data released yesterday showing a 25% y/y drop in Chinese exports measured in USD weighed on risk sentiment and all major equity indices in Europe and the US ended the day in red.

Especially China-sensitive commodity stocks came under pressure after the gains seen last week, when commodity prices recovered somewhat. Commodities were under renewed pressure as well and Brent oil is once again below USD40 a barrel. That said, oil is still up more than 40% from the January low. In fact we argue in our China Flash Comment (see link to the right) that one should be careful reading too much into the February export data. Both a base effect and the Chinese New Year distort the numbers.

However, the market does not seem to share our view on the Chinese numbers and overnight Asian stock markets have seen strong selling pressure. Chinese stocks in Shanghai are down close to 3% and Nikkei is down 1.3% at the time of writing.

The new growth concerns have been very supportive for global fixed income markets and especially Japanese yields were sent lower this week after a very strong auction in the 30Y segment yesterday that pushed 30Y JGB down by more than 20bp to as low as 0.46% last night. Overnight we have seen some profit-taking in long JGBs though, and yields on the 30Y have edged some 10bp higher again but the ultra long end of the Japanese curve is still down 80bp since December last year. It seems that the negative deposit rates are pushing investors further and further out on the curve in Japan. The very low JGB yields supported both the European and the US fixed income market and 10Y Germany is once again below 0.20% and 10Y Treasury yields dropped 5bp during the session to currently 1.85%. The rally in JGBs might be a ‘warning’ of what could be in store if the ECB steps up its easing significantly tomorrow. Remember, the German yield curve is still significantly steeper than it was April last year when 10Y yields in Germany reached 7bp.

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