Following yesterday's inexplicable ramp in stocks, which perhaps was driven by the collapse in oil (which sent energy companies higher because a 30x energy forward PE is cheap), and by the latest battery of disappointing economic data which made it less likely the Fed will proceed with a tightening move, overnight futures have given up a portion of the gains, and were trading down 0.3% at last check. And yet, if yesterday's weakness was driven by USD weakness, today's jump in the EURUSD above 1.06 (on absolutely disastrous German ZEW investor index print) is now somehow responsible for risk offness? And, adding confusion to insult, the 10 Y is down to 2.05% and in danger of re-entering a 1% handle. Sadly, nothing makes sense any more and today's conclave of central planners in the Marriner Eccles building ahead of tomorrow's 2pm FOMC "impatient" announcement isn't going to make it any better.

But it isn't just the Fed - as expected, the BoJ stood pat on their existing monetary policy with Kiuchi the only dissenter. In terms of the main takeaway, the BoJ warned that Japanese CPI could reside at 0.0% for the time being due to lower energy prices but said that additional easing was not required for now. Nonetheless, the BoJ will continue to examine ongoing risks to the economy and expect their 2% CPI threshold to be reached during 2015/16 fiscal year. As such, little market reaction was seen with the Nikkei 225 (+0.99%) holding on to its opening gains stemming from the positive Wall Street close alongside yesterday’s broadly weaker USD. Elsewhere, the Shanghai Comp. (+0.5%) has pulled off its best levels heading into the European open despite originally continuing the trend seen yesterday amid ongoing expectations for further easing.

European equities trade mostly lower by around 0.2-0.5% in a pullback of yesterday’s substantial gains, with the exception of the FTSE 100 which is trading higher by around 0.5%. UK stocks have been led higher by a rebound in energy names following yesterday’s notable underperformance despite both WTI and Brent actually once again trading lower this morning. One thing to note for UK energy names is that they are set to benefit from tomorrow’s UK budget with Chancellor Osborne set to unveil a new investment allowance in an attempt to counter CAPEX reductions. Fixed income markets have failed to gain any meaningful direction with newsflow relatively light thus far and a relatively mixed German ZEW and in-line Eurozone inflation report. Gilts outperform but merely on a catch up basis given the moves higher seen in USTs after the Gilt close yesterday. As was the case yesterday, newswires are reporting that Russian troops have been placed on full alert in the Baltic region. However, this is due to ongoing training drills and as was the case last week.

FX markets have once again been largely swayed by fluctuations in the USD-index which moved lower alongside the European open in a similar vein to yesterday ahead of the FOMC meeting. Despite the USD-index pulling off its worst levels in recent trade, EUR trades higher and AUD has pared its overnight losses after the RBA minutes revealed the central bank had considered another rate cut before opting to instead adopt a data dependent approach. Nonetheless, GBP has bucked the trend as political concerns heading into the UK general election has seen GBP/USD move back below 1.4800 ahead of tomorrow’s UK budget release. Finally, USD/JPY has traded in a relatively tight range with a large (750mln) option expiry at 121.25-30 providing some magnetism for price action.

In the energy complex, both Brent and WTI have failed to be granted any reprieve from the weaker USD with ongoing concerns about the glut of global supply continuing to weigh on sentiment for the sector. Elsewhere, spot gold and silver have traded in a relatively tentative manner ahead of tomorrow’s FOMC meeting, while platinum remains the worst performing precious metal of 2015 amid a decline in Chinese jewellery demand to reach its lowest level since July 2009.

And moments ago, this:

• NY CRUDE DROPS BELOW $43/BBL; FALLS 90C OR 2.1% TO $42.98/BBL

In summary: European stocks near session low, paring earlier gains, while Asian shares rise. U.S. stock index futures drop, euro strengthens against the dollar. Fed begins a two-day meeting today. German ZEW March investor index misses estimates. U.K. plans major tax cut for North Sea. The U.K. and Swiss markets are the best-performing larger bourses, the Italian and German the worse. The euro is stronger against the dollar. U.S. housing starts, building permits due later.

Market Wrap

• S&P 500 futures down 0.3% to 2063
• Stoxx 600 down 0.3% to 398.8
• US 10Yr yield down 2bps to 2.05%
• German 10Yr yield down 1bps to 0.27%
• MSCI Asia Pacific up 0.8% to 145
• Gold spot up 0.1% to $1155.6/oz
• Eurostoxx 50 -0.2%, FTSE 100 +0.5%, CAC 40 -0%, DAX -0.6%, IBEX -0.2%, FTSEMIB -0.6%, SMI +0.1%
• Asian stocks rise with the Nikkei outperforming and the Kospi underperforming
• MSCI Asia Pacific up 0.8% to 145; Nikkei 225 up 1%, Hang Seng down 0.2%, Kospi up 2.1%, Shanghai Composite up 1.6%, ASX up 0.8%, Sensex up 1.1%
• Euro up 0.38% to $1.0608
• Dollar Index down 0.16% to 99.45
• Italian 10Yr yield up 1bps to 1.19%
• Spanish 10Yr yield up 1bps to 1.19%
• French 10Yr yield down 0bps to 0.51%
• S&P GSCI Index down 0.4% to 388.3
• Brent Futures down 0.6% to $53.6/bbl, WTI Futures down 1.1% to $43.4/bbl
• LME 3m Copper down 1.5% to $5758/MT
• LME 3m Nickel down 1.2% to $13760/MT
• Wheat futures up 0% to 514.3 USd/bu

Bulletin Headline Summary from RanSquawk and Bloomberg

• The FTSE 100 outperforms amid a pullback in energy names despite Brent and WTI once again trading lower amid ongoing supply concerns
• USD-index is slightly weaker ahead of the FOMC, lifting most of its major counterparts including AUD which has recovered from a more dovish than expected RBA minutes release
• Looking ahead, today sees the release of US housing starts, building permits and DoE inventories
• Treasuries gain, led by long end, as crude fell for a sixth day; Fed meeting begins today, with statement, updated SEP and Yellen press conference tomorrow.
• Fed seen removing “patient” from statement as it moves close to raising interest rates, analysts say
• Iran could raise oil exports by 1m barrels/day without international sanctions, its oil minister said as talks resumed with the U.S. over the nation’s nuclear program
• Austria’s decision to burn bondholders of a failed state bank may mean almost EU1.3t of European debt once deemed  risk-free now comes with a hazard warning
• BOJ’s Kuroda said he couldn’t rule out the risk of consumer prices falling below zero after the central bank on Tuesday maintained record monetary stimulus
• Germany’s ZEW index of investor confidence rose to 54.8 in March from 53 in February, below 59.4 median estimate in a Bloomberg survey
• Greece will begin debating measures to boost liquidity as the cash-starved country braces for more than EU2b in debt payments Friday; payments due include interest on a swap originally arranged by Goldman, according to a person familiar
• While baseline scenario is for Greece to ultimately stay in euro zone, a “big enough” misstep may force exit, Morgan Stanley economists incl. Daniele Antonucci write in client note
• Sovereign 10Y yields mostly lower; Italy, Portugal and Spain higher. Asian stocks gain, European stocks, U.S. equity- index futures fall. Crude and copper slide, gold steady

US Event Calendar

• 8:30am: Housing Starts, Feb., est. 1.040m (prior 1.065m)
  • Housing Starts m/m, Feb., est. -2.4% (prior -2%)
  • Building Permits, Feb., est. 1.065m (prior 1.053m, revised 1.060m)
  • Building Permits m/m, Feb., est. 0.5% (prior -0.7%, revised 0%)

Central Banks

• FOMC begins two-day meeting

DB's Jim Reid Concludes the Overnight Recap

The European bond bull market is pausing for breath at the moment which will probably be a relief for the ECB as they would surely rather not have markets too predictable and their job made ever harder. However attention has shifted to the US for the moment with yesterday seeing a reversal of recent trends as we go into the 2-day FOMC meeting. The US Dollar had a rare down day with the broader DXY finishing 0.72% lower. In fact, out of 52 trading days so far, the DXY has closed firmer in 35 of them. US equity markets meanwhile recovered some of Friday’s losses closing +1.35% higher and helped in part by a weaker set of macro data releases which lent support to the doves. It was a better day for Treasuries too. 10y yields closed 4.2bps lower at 2.072% whilst longer dated 30y yields ended 5.4bps lower at 2.64%.

Onto the weaker US data, Industrial production (+0.1% mom vs. +0.2% expected) printed below consensus while manufacturing production fared little better, dropping -0.2% mom which was below expectations of a flat reading. Capacity utilization dropped 0.2% to 78.9% and also came in below expectations of 79.5% for February. The reading was in fact also the lowest since February last year. Elsewhere the NAHB housing market index dropped 2pts during March to 53 (and below market expectations of 56). Surely the Fed have to acknowledge the uncertainty at the moment even if they think it is temporary.

Despite a better day for risk assets in the US, and a stronger Euro, there was no let up for European bourses which continue to march higher. The Stoxx 600 finished +0.90% to break the 400 level and finish just shy of the highs in September 2000 whilst the DAX finished 2.24% higher and closed above 12,000 for the first time on record. The Euro recovered a touch to finish +0.69% versus the US Dollar at $1.057. Bond yields on the other hand drifted higher. 10y yields in Italy (+3.2bps), Spain (+2.8bps) and Portugal (+0.9bps) were all wider and Bunds finished around 2bps higher at 0.277%. In fact, 10y yields in Spain and Italy are now 12bps and 15bps off Thursday’s intraday lows in yield and Bunds are some 10bps higher over the same period.

Yesterday we got the news out of the ECB that the central bank had settled €9.75bn of public-sector bond purchases last week. It’s difficult to assess the current run rate with regards to the monthly target with Bloomberg noting that the statement could be understated given it excludes the bonds which have not yet settled.

ECB President Draghi was also in the news yesterday and was reported as playing up the Euro-area recovery, saying that ‘most indicators suggest a sustained recovery is taking hold’ and that ‘confidence among firms and consumers is rising, growth forecasts have been revised upwards and bank lending is improving on both the demand and supply sides’ (Reuters). Draghi did interestingly however comment that Euro-area countries have yet to converge sufficiently and as a result have not yet dispelled doubts about the bloc’s cohesion. The President instead proposed for more integration between member states, specifically saying that ‘there must be a quantum leap in institutional convergence’ in order to ‘move from a system of rules and guidelines for national economic policy making to a system of further sovereignty sharing within common institutions’.

Just wrapping up yesterday’s price action, it was another weak day for oil markets as both WTI (-2.14%) and Brent (-1.95%) tumbled for the third consecutive day to $43.88/bbl and $53.94/bbl respectively. Revisiting the US HY sector and the energy component in particular, it’s interesting to see that cash spreads have actually tightened 30bps so far this year. WTI and Brent meanwhile have tumbled 18% and 7% respectively over the same period. The broader US HY index has tightened some 32bps YTD. Clearly the resilience in US HY energy names is in stark contrast to last year. Over the period from when Brent fell from $110/bbl in June to $60/bbl at the end of 2014, US HY energy cash spreads widened 426bps – the move even more exaggerated if we use the early December wides in spread. So a very different story so far this year but the sharpness of the recent leg lower in Oil might start to test the HY energy recovery. It also is likely to prolong the low headline inflation story for longer which has obvious policy implications.

Refreshing our screens this morning, bourses are largely in the green in Asia following the US lead. Indeed the Nikkei (+1.13%), Hang Seng, (+0.34%), Shanghai Composite (+1.33%) and Kospi (+1.77%) are all trading firmer as we go to print. There was little in the way of surprises out of this morning’s BoJ meeting with no changes to the scale of asset purchases.

Elsewhere in the region, our China economist Zhiwei Zhang noted yesterday that the latest batch of fiscal data from the Ministry of Finance for the first two months of the year showed that the fiscal slide is worse than expected. The national budgetary income grew by just +1.7% yoy versus +8.6% in the same period last year. Zhiwei noted that central budgetary income was also weak whilst the various tax categories were all down. He believes that the government will start easing policies in April with this shift likely to happen on both the fiscal and monetary sides. In terms of the fiscal side, expectations are for more spending through both the central government as well as the policy banks. On the monetary side meanwhile, Zhiwei expects a RRR cut of 50bps in early April when March economic data becomes available and also expects an interest rate cut in May. The question remains how the government will fill the financing gap and avoid a fiscal-driven hard-landing.

Taking a look at today’s calendar, focus this morning in the European time-zone will be on the ZEW survey out of both Germany and the Euro-area. The final February CPI reading for the Euro-area is also due with the market looking for a -0.3% yoy headline reading and +0.6% yoy core print. Aside from the obvious focus on the start of the FOMC meeting this afternoon, housing starts and building permits for the US are also due. To close out the day I'll be belting out Gold, True and Through the Barricades at the O2 arena and will be wondering where the years have gone!!