In terms of data the main release is euro area inflation for March

Market movers today

• In terms of data the main release is euro area inflation for March. We expect it to decline to a new cycle-low of 0.5% y/y mainly due to the timing of Easter. If we are right in our forecast we see the odds slightly in favour of further ECB easing later this week.

• In Germany retail sales are expected to decline a bit after a very strong reading in January. Consumer confidence has trended upwards during 2013 and points to higher retail sales but there is often some volatility in the series and we expect a small decline in February.

• In the US Fed’s Yellen will speak today and will have a chance to clarify her communication from her Fed press briefing that on the surface appeared hawkish.

Selected market news

We have a slightly positive risk sentiment this morning with Asian stock markets slightly higher and the FX market largely range trading. The meeting yesterday evening initiated by Russia between US Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrow has eased fears that a Russian invasion of Eastern Ukraine is imminent. That said, Russia at the meeting refused to withdraw its troop-concentrations along the Ukrainian border and it appears Russia will try to use the threat of invasion to influence the political development in Ukraine.

In France President Hollande and his Socialist Party as expected suffered a major defeat in connection with the final second round of local government elections on Sunday. The main winners were the centre-right opposition party UMP and the far-right and euro-sceptic National Front, albeit National Front failed to gain in some major cities it has been targeting and only managed to get 7% of the overall vote. In the wake of the defeat President Hollande is expected to announce a major government reshuffle possibly as soon as today.

In Turkey Prime Minister Erdogan and his AK-party appear to have won a clear victory in the local elections on Sunday. So far the AK-party appears to have won more than 45% of the votes and has been able to hold on to both Istanbul and Ankara albeit Ankara remains a close call.

In Japan industrial production in February unexpectedly dropped 2.3% m/m after increasing 4.0% m/m. The Markit/JMMA manufacturing PMI in March also declined to 53.9 from 55.5 in the previous month. These data suggest that the Japanese economy is poised to slow in the wake of the consumption tax hike tomorrow and the Japanese economy might be a bit weaker than expected ahead of the tax hike. This increases the likelihood that Bank of Japan could soon be forced to ease to counter the tax hike.