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The Federal Open Market Committee meeting minutes, leaked accidentally prior to the opening of
US bourses, revealed that ‘many’ participants would like to slow the pace of purchases ‘over
the next several meetings’. A ‘few’ participants deemed it necessary to continue
at the current pace ‘at least until late in the year’. Importantly, however, the
discussion referred to in the minutes took place before the latest indications of a soft
patch in growth (ISM manufacturing, non-farm payrolls), which has clouded the outlook.
However, the September or October meeting is still seen as the most likely time for
tapering of purchases. Overall, the minutes did not change the general
perception that weak data will prompt a continuation of asset purchases, i.e. the ‘Bernanke put’
remains in place. US stocks rallied broadly, extending their push into record territory.
The S&P500 index rose 1.2%, led by gains in the technology and healthcare sectors. The
gains are also spilling into Asia this morning, where particularly the Nikkei continues to
perform due to tailwinds from the weaker yen. US Treasuries traded lower for a third day
sending the yield on the 10 year note some 5 base points higher to 1.80%. The Federal
Open Market Committee minutes coupled with strong market sentiment also seemed to weigh
on demand at last night’s note auction, drawing a higher-than-expected yield.
Japanese government bonds continue to trade with heightened volatility due to the aggressive
easing steps from Bank of Japan and futures dealing were temporarily suspended yesterday
as prices plunged. USD/JPY almost touched the 100 barrier, despite Bank of Japan Governor
Kuroda commenting that all ‘necessary’ and ‘possible’ measures have been taken.
Nonetheless, Kuroda also reiterated the commitment to achieve the 2%inflation goal, keeping the
door open for further easing. EUR/USD has managed to stay above 1.3050 despite
the somewhat hawkish Fed minutes yesterday. It underlines that given the latest signs
of weaker US numbers the Fed might not be in such a hurry to ‘exit’ its quantitative
easing programme but it is probably also a reflection that the market is already speculative
short EUR/USD. USD/JPY almost touched the ‘magic’ 100-level.
The relentless rise might come to a temporary halt today on profit-taking and as numbers
from the Japanese Ministry of Finance showed that Japanese investors were net sellers of
foreign debt in the week ended 5 April. The latter is somewhat of a surprise given the
vast anecdotic information that Japanese asset managers went on a buying spree in eurozone
government bond markets after the Bank of Japan changed its monetary policy the week
before. Not a lot of action today. Speeches by Bullard
and Plosser may give a little more insight into how the latest payrolls have affected
the Fed's thinking about tapering of asset purchases following the more hawkish minutes
yesterday. Initial jobless claims are also due for release but are likely still distorted
by Easter and hence should be taken with a pinch of salt. Claims rose sharply last week
to 385,000 from 357,000 but are expected to fall back to 360,000. The next big market
mover will be US retail sales for March tomorrow, which will give us more information on how
soft the soft patch may be.