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Fundamental Morning Wrap: New BoJ team to hit the ground running?

A quiet European session has translated into a quiet morning for institutional research today, with the bulk of focus falling upon the overnight release of the BoJ minutes, which showed a leaning towards further aggressive APP easing and possibly an early BoJ meeting once the new team take the helm. In the US, eyes are on the Republican Budget proposal which will include $4.6trn of cuts over the coming decade, just ahead of a prospective Goverment shutdown, while in the UK, poor data builds expectations of pending BoE easing.

JPY

Derek Halpenny of BTMU notes that USD/JPY has continued to drift higher in the aftermath of Friday´s NFPs and the release of the last BoJ minutes which showed there is a growing bias in the bank for further easing in the form of long dated JGB purchases. Danske Bank analysts add to this point, noting that news that the bank is considered a variety of assets for purchase underlines that a new generation of policymakers has entered the BoJ with the monetary toolbox being viewed with an open, and notably very dovish, mind. They are expecting the BoJ to extend its APP aggressively, starting perhaps as soon as April. Further, Gareth barry and Geoffrey Yu of UBS suspect that an early BoJ meeting could be called “immediately after” the new leadership takes office on March 20th.

USD

Derek Halpenny of BTMU notes that in the US, Senator Paul Ryan, Chairman of the House Budget Committee will unveil the Republican´s House of Representatives 2014 budget which will include $4.6trn of cuts, with the aim of balancing the budget within a decade. This point is reiterated by Danske Bank analysts who add that this presentation will mark the start of tough negotiations with Democrats, with a prospective Government shutdown on March 27th looming. they feel that the drag on GDP from fiscal contraction will no doubt be significant and the reaction of US employers and consumers could be instrumental for USD.

GBP

ING economist James Knightely notes that UK Industrial Production plunged this morning, with manufacturing mainly responsible. He ultimately feels that continued poor economic data indicates that pressure on the BoE to take further action will be intensifying. Jane Foley of Rabobank feels that this mornings numbers indicate that headlines have steered market expectations towards a possible re-write of the Bank´s Funding for Lending scheme on the basis that lending has not materially improved in the small business sector. She writes, “ Whether it is more QE or a re-worked FLS, sterling remains vulnerable and we continue to favour selling into any rallies.”

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