BoJ holds at 0.50%

Usd was slightly weaker in Asian session global equities stayed negative and traders paired down high yielders and moved back into Jpy. Looks as if markets are poised for another bout of risk aversion as European stock futures are set to open below fair value and commodities deleveraged.

The Fed minutes of March 18th provided no significant revelations which had added to uncertainty in the markets. However, it did come to light that Fisher and Plosser, the two dissenters, opposed the rate cut because "in light of heightened inflation risks, they favored easing policy less aggressively". We conjuctured this to mean that they were looking for a smaller cut rather then a hold. Overall the Feds focus still lies squarely on growth risks and futures rate decision will depend on the incoming data and status of the financial markets. Currently the markets are unsure whether the Fed will cut the rates by 25bp or 50bp at the next FOMC meeting but we are leaning towards a 25bp at this juncture. Much rests on next week's retail sales, since there are significant downside risks conveyed through consumer and business surveys, and of course the critical Q1 GDP release. Until we get greater clarity for the US data, expect the Usd to be range bound against the majors (with a slight exception to Gbp).

The BoJ voted unanimously to hold rates at 0.50% as was universally expected. Members cited the slowing domestic economy and turmoil in the financial markets as reason for this decision. Meanwhile, Shirakawa was appointed the new BoJ governor as his nomination was approved by both houses of Parliament. However, nominee for vice-governor, Watanabe, was rejected because of his MoF background.

RBNZ Governor Bollard made some strongly worded comments regarding the New Zealand economy and the low probability of easing rates. He stated that the kiwi economy remains strong despite yesterday's NBNZ business survey signaling a deterioration in business conditions in Q1.

The final release of euro-zone GDP Q4 07 is doubtful to reveal any major surprises for the headline growth rate. While UK industrial production and manufacturing output should avoid an outright recession this year, recent surveys, including CBI and CIPS/RBS, have sent mixed signals. Overall we are expecting a more downbeat assessment of the UK economy and further pressure on the BoE to move rates on Thursday.