Good Morning.

Here is what is driving the markets today.

Credit markets remained resilient throughout yesterday’s trading session and are expected to remain well bid early on this morning, despite the correction in global equity markets yesterday. It is difficult at this stage to devise what actually led to this correction, perhaps investors sought to take advantage of their Year-to-date performances so far and take profit and crystallise any gains, given the absence of key economic data drivers during the day. The technology sector, one of the leading sectors in equity markets so far this year, was amongst the worst hit.

Increased tensions in Ukraine and Russia did not help either as pro-Russia protesters have taken over some official buildings in Eastern Ukraine, namely in Donetsk, Kharkiv and Lougansk. Since these events unfolded, the protesters have been ousted by the Ukrainian forces with only few protesters occupying an official building in Donetsk. Meanwhile, Gazprom has increased the price for the gas it exports to Ukraine by 80% a decision that the Ukrainian government is refusing to honour. Although a substantial rise in gas prices was largely anticipated, the magnitude of this increase was not and is expected to put massive pressure on the Ukrainian economy. Furthermore, the Kremlin is now considering the April 2010 bilateral agreement to be null and void, following the annexation of Crimea. This effectively means that Russia now expect Ukraine to repay USD11.4 billion corresponding to the accumulated discount granted to Ukraine in the last four years. Other sanctions have led to pressure on Ukrainian exporters and on the Ukrainian economy in general given the very low level of FX reserves of ca.$15 billion as at the end of March. This increased tension has led Moody’s to downgrade Ukraine by another notch to Caa3, this despite the recent announcement of the USD27 billion IMF package.

There are a number of key events happening this week.

ECB’s Mario Draghi is expected to attend this week’s International Monetary Funds’ meetings in Washington whereby Draghi himself and other ECB policy makers are expected to reiterate their willingness to use quantitative easing, but not really disclose the timing, shape and size of such unconventional measures. This suspense is creating unnecessary uneasiness around global capital markets following last week’s announcement and market analysts expect Draghi to be closely scrutinised in this week’s meetings to shed some light and clarity on the ECB’s intentions.

In the US, in the absence of key economic data releases, the market will be closely anticipating the minutes of the 18-19 March Federal Open Market Committee meeting for further insight into the US Federal Reserve’s policymakers’ current strategy.

Meanwhile in the UK, the MPC meeting is scheduled tomorrow, and is expected to last one day (as opposed to the customary two days) as some MPC members will be attending the IMF meeting in Washington, with the announcement scheduled for Thursday, with no surprises expected there.

Elsewhere, with no change at central bank policy meetings in Japan and South Korea, the market focus will be focused on China’s activity data, which is expected to point towards a persistent slowing trend in domestic demand, as commodity imports likely slowed, producer price deflation deepened and total credit growth probably moved lower again.

Have a nice day!