USD/JPY has dropped more than five big figures in April

Market Movers

Several Fed members are due to speak this week. While Yellen’s last speech has already set the stage, as she put more weight on the downside than upside risks to her outlook, we will listen in particular to what Jerome H. Powell (voter, neutral) has to say on Thursday, as it is a long time since we heard from him. Also Fed’s Dudley (voter, dove), who speaks this afternoon, could be interesting. Otherwise focus this week in the US market is on retail sales on Wednesday and CPI figures on Thursday.
In the UK, the most important event is the Bank of England (BoE) meeting on Thursday. We expect the BoE to maintain the Bank Rate and stock of purchased assets unchanged at 0.50% and GBP375bn, respectively.
In the euro area, the calendar is extremely light in terms of data releases. In our view, one of the only interesting events is the release of euro area industrial production for February on Wednesday.
In Scandinavia attention turns to inflation this week. Norway and Denmark are set to publish data today and Sweden tomorrow.

Selected Market News

This morning Chinese CPI for March rose an unchanged rate of 2.3% y/y compared to February. However, if we look at non-food prices the annual rate was just 1.0% underlining that Chinese inflation is still very muted.

USD/JPY has dropped more than five big figures in April and has overnight once again traded below the 108 level. As a consequence Japanese markets are scaling up easing expectations ahead of the 28 April BoJ meeting. Easing expectations are also fuelled by a weak economic outlook. This morning data showed that core machine orders dropped 9.25 in February. The outcome of the BoJ meeting will not only be important for the FX market but also for the global fixed income market. Recent data show a significant increase in the net purchase of foreign bonds by Japanese investors. Especially US treasuries and French government bonds have been in demand.

Yesterday, Austria became the first European country to use the new European recovery and resolution framework to share losses of a failed bank with senior creditors as it slashed the value of debt owed by the bad-bank of Heta-Heta Asset Resolution AG. Senior liabilities were slashed by 54% and the maturities of all eligible debt were extended to 2023. The announcement comes after a long standoff between the province of Carinthia and Heta's creditors, of which many have insisted on a full repayment because their bonds were guaranteed by the province of Carinthia. The announcement could weigh on sentiment today but remember that the trouble of Heta and the new resolution mechanism are well known to the market.

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