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Asian stock markets moved higher and are heading for a second weekly gain, with China bouncing back after the central bank said it sees room for monetary easing. The ASX closed with a marginal loss, but most other markets are up as G20 finance heads discuss stimulus efforts and U.S. and U.K. stock futures are also up. Oil prices are slightly down on the day, but above USD 33 per barrel as risk appetite returns. BoE’s Carney warns against “zero sum game” of negative interest rates, while highlighting sizeable downside risks”. Released overnight U.K. GfK consumer confidence came in much weaker than expected. The European calendar still has EMU ESI Economic Confidence as well as preliminary February inflation data from France, Spain and Germany.

Japan’s national CPI was as expected, with the total CPI and core CPI (excluding fresh food only) coming up zero (0.0%) in January on an annual basis after respective gains of 0.2% y/y and 0.1% y/y in December. The core CPI, which takes out food and energy, grew 0.7% y/y in January after the 0.8% rise in December. Tokyo CPI was up 0.1% y/y in February, contrary to an expected drop following an 0.3% pull-back in January. The Tokyo core CPI fell 0.1% y/y in February, also better than expected after the 0.1% drop in January. The outlook remains less than upbeat for Japan’s economic and CPI growth, as the shock-and-awe of negative rates is not having the desired impact.

PBoC’s Zhou said China has room to add accommodation, saying “China still has some monetary policy space and multiple policy instruments to address possible downside risks.” Current policy is “prudent and relatively accommodative” he said. The Shanghai Comp is a modest 0.6% higher and the CSI 300 up 0.8% after suffering 6% declines Thursday, aided today by Zhou’s comments, a steady Yuan and lower money market rates. The Hang Seng has bounced 1.6% while the Nikkei 225 is 0.8% higher.

SF Fed dove Williams said the “Taylor Rule” is too rigid and forecast-reliant, and he opposes tying monetary policy to a single rule. Otherwise on monetary policy he largely repeated the “gradual rate hikes, further economic growth, inflation rebound” mantra. Williams sees no sign of a looming recession, and is less concerned about Chinese growth than others, in Q&A following his speech. However, he still wants to “take things slowly” on rates. He acknowledged that negative rates are potentially in the policy toolbox, but such actions won’t be taken over the foreseeable future, especially as there are unintended consequences. Domestic demand will be the main driver of the U.S. economy over the next couple of years. Indeed, he sees upside risks from consumer spending fueled by low energy prices.

The US initial jobless claims rose to 272k (median 270k) from 262k for the week-ended February 13. Continuing claims fell to 2,253k from 2,272k (was 2,273k) for the week-ended February 6. This is near levels last seen in 2006. The four-week average fell to 272k from 273k and 281k before that. Claims are averaging 268k in February, 284k in January and 277k in December.

 Main Macro Events Today

• German Consumer Price Index: The February Y/Y CPI numbers are released today and are expected to come in at 0.2%, down 0.3% from January. Low inflation numbers are due to soft energy prices while the annual contraction eased in December. This suggests that there is no real danger of a deflationary spiral.

• US Gross Domestic Product: The second release on Q4 GDP is out on Friday and we expect the headline to be revised down to 0.5% (median 0.4%) from 0.7% in the first release and 2.0% in Q3. Driving our expectations for downward revisions we expect to see inventories revised down by $14 bln and construction spending revised down by $8 bln. However, we expect some offset from an $11 bln upward revision in net exports and a $2 bln upward revision in equipment spending.

• US Personal Income: January personal income is out Friday and should reveal a 0.4% (median 0.4%) increase for headline income with consumption growing by 0.3% (median 0.3%). This compares to December figures of 0.3% for income and unchanged for consumption. We expect the chain price index to reveal a flat rate for the headline with a 0.3% core increase.

Janne Muta

Chief Market Analyst

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