Bank of Japan holds policy rate steady

The Bank of Japan elected to hold the policy rate unchanged at 0.5% at its meeting on Wednesday, as had been widely expected. While domestic Japanese data continues to be supportive of further rate hikes this year - including pledges from companies to the country’s largest union group for the largest wage hike in 34 years - Governor Ueda flagged concerns about global growth prospects due to trade tensions.

US industrial production rose more sharply than expected in February, rising 0.7% m/m, up from 0.3% in January. The jump was largely attributable to a material rise in automotive manufacturing, which rose 8.5% m/m. While the headline figure provides further confirmation that the US economy is not facing an imminent recession threat, the increase in automotive production may however in part reflect manufacturers front-running tariffs on portions of their supply chain.

An index of US import prices rose 0.4% m/m in February, more steeply than consensus expectations for it to remain flat. The rise on the month was driven by an increase in the price of natural gas, and industrial supplies. Import prices rose across most source markets. Notably there were price rises on imports from Canada, Mexico and China, although only China was subject to additional tariffs by February.

The expectations gauge of the German ZEW survey jumped sharply in March, rising to a value of 51.6 from 26.0 in February. The rise was higher than consensus expectations for a rise to 48.3, with the outturn appearing to have been driven by Chancellor-Elect Friedrich Merz’s defense and infrastructure spending plans. While the expectations component saw a marked improvement, the current conditions component remained weak, improving only marginally to a value of -87.6 in March from -88.5 the month prior.

Today’s Economic Data and Events

• 22:00 US FOMC decision. Forecast: 4.50%
• 22:00 US Fed summary of economic projections. 

Fixed Income

• US treasuries saw marginal gains on Tuesday, after strong demand during a 20ryr auction. The 2yr yield was broadly unchanged at 4.0398%, while the 10yr yield fell 1.5bps to 4.2831%.
• Moves in European bond yields were mixed on the day. The 10yr Gilt yield was flat at 4.641%, while the 10yr Bund fell by just under of 1bps to 2.808%.

FX

• The dollar spot index saw another fall against a basket of major peer currencies, declining 0.12% on Tuesday. EURUSD rose 0.2% to 1.0945, while GBPUSD gained by a more marginal 0.07% to reach 1.3001. USDJPY also saw a small rise (0.04%) to reach 149.27, ahead of the BOJ rate decision.
• Moves in commodity currencies were mixed on the day. AUDUSD fell 0.36% to 0.6361, NZDUSD was flat at 0.582, and USDCAD rose by just 0.07% to 1.4298.

Equities

• Technology-stocks pulled major US equity indices lower on Tuesday, despite better-than-expected industrial production data. The Dow Jones fell 0.62%, the S&P 500 declined 1.07%, and the NASDAQ dropped 1.71%.
• European indices saw a third consecutive day of gains on Tuesday, with news that German lawmakers had passed plans to increase spending on defense and infrastructure. The Eurostoxx 50 gained 0.7%, the CAC 40 rose 0.5% and the DAX increased by 1%. The FTSE 100 gained 0.3%.
• Locally, the DFM fell 0.43% while the ADX closed 0.2% higher. The Tadawul fell 0.8%.

Commodities

• Brent futures declined by 0.7% to USD 70.56/b, while WTI dropped 1% to USD 66.9/b, with general risk-off sentiment appearing to drive the market. The API reported that US inventories rose by 4.6m barrels last week.