Euro And Yen Volatility Slips To New Five-Year Lows On The Ides Of March

Overview: The capital markets are calm ahead of the weekend. Outside of Australia and Thailand, Asia Pacific equities advanced, while European shares are mostly little changed. The regional benchmarks, like the S&P 500 have recouped last week's losses. Benchmark 10-year yields are little changed on the day, leaving the US 10-year yield virtually unchanged on the week near 2.62%. The benchmark Japanese government bond yield has hovered around minus five basis points, while European bond yields were mostly a little higher, except for Italy, where the yield has eased around three basis points to 2.52%. The US dollar is softer against all the major currencies and most of the emerging market currencies. The dollar has traded with a heavier bias this week, following the disappointing headline job creation reported a week ago.  

Asia Pacific

The Bank of Japan stuck to its knitting. As widely anticipated, policy was unchanged. The central bank cut its assessment of exports, industrial output, and foreign growth, in line with the recent string of economic data. There continued to be two dissents (Kataoka and Harada) from a more dovish position. While many Japanese officials recognize that the 2% inflation target is not realistic, there has been so much that has been sacrificed in its name, there is a reluctance to abandon it. There is also a problem with the credibility of the new target. In its own way, the BOJ appears to have stumbled into the fallacy of sunk costs. The other problem is that Japan is committed to raising the sales tax in October to 10% from 8%. Even though the government is trying to soften the blow through consumption incentives, the economy, which contracted in H2 does not have strong growth impulses in the early part of 2019.

China's National People's Congress session has come to an end. Premier Li reaffirmed CNY2 trillion tax cuts will go into effect on April 1. The other significant policy initiative is a new law that ostensibly provides for equal treatment of foreign and domestic firms and bans forced technology transfers. What China says, its declaratory policy is rarely an issue. Officials often seem to say the right things. It is the operational policy, what it does, where the proverbial rubber hits the road, that is problematic.  

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Read more by Marc on his site Marc to Market.

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