Good morning!

European stocks had a negative day yesterday notwithstanding some progress in the Russian-Ukrainian crisis and dismal inflation data which increases the chances for stronger ECB action. Contrary to last week, it appears that the disappointing data fed deflationary fears, and reduced investors’ excitement to increasing likelihood of more easy money; that is, while last week’s press statements, which suggested that QE is not out of the table subsequently warming investors’ sentiment, the inflation data was so akin to a depressed economy that it overwhelmed stock investors. As we are writing the European futures are however positive possibly following the positive performance of the US and Chinese markets overnight.

Federal Reserve’s chairwoman yesterday delivered a speech which clarified earlier statements regarding the timing of a change in policy rates and suggested that investors misinterpreted the committee’s intend for an increase in rates in about 6 months. Indeed, she said that the Fed’s regime will remain accommodative for “some time” and expressed deep concerns regarding the labour market. As such, US equities gained about 0.8%; S&P500 closed the month 1.05% higher than where it started the year but Dow Jones does not boast the same positive year to day return. The Treasury yields also responded with the short term end flattening as investors’ became more convinced of the Fed’s “low for long rates” commitment.

A gauge of Japanese manufacturers’ sentiment rose to a multi-year high but it still failed to meet expectations; as such, the country’s industry appears to be less well positioned than projected for this month’s increase in VAT. Similar data was released for China where the official PMI increased and marginally topped expectations, but an alternative survey conducted by Hongkong and Shanghai Banking Corporation (HSBC) slipped to 48 from 48.5 in February and remained below the level commensurate with expansion (i.e. 50). Against this background, the Asian equities fluctuated with Chinese stocks finding some support as the prevailing sentiment appears to be that weaker data will trigger government action; the latter also benefited from the positive earnings surprises of some developers (Bloomberg reported that the country’s second largest developer posted a 27% increase in net income for 2013).

Today we will see leading manufacturing data (Purchasing Managers' Index) from Europe and the US as well as the latest unemployment figures for the Euro Area and E.U. Meanwhile, we will continue to watch the developments in Ukraine where the negotiated movement of troops away from the Ukrainian border was followed by the trip to Crimea of the Russian Prime Minister, Dimitry Medvev. As such, the progress appears to be less significant than initially hoped for.

Have a good day,