A later start to the fed tightening cycle - Estrategia de expertos

UNICREDIT. News and Events:

• BoJ: The central bank kept the policy rate at 0.1% and doubled the size of the three-month loan facility. The assessment of the economy was left unchanged.
• Fed: Yesterday, the Fed retained the "extended period" wording, prompting us to shift the timing of the first rate hike from September to early 2011.
• US: Today, Bernanke testifies before the House on banking supervision. The data calendar is thin: February PPI should drop 0.2% mom, with the core rate up a benign 0.1% mom.
• UK: The MPC probably voted unanimously in favor of keeping the target rate and the APF program unchanged. Data-wise, jobless claims in February likely fell 8K.

FI/FX Strategy:

• Mkt recap/Overnight: Bonds started on a weak tone in the morning. Demand became stronger in the second part of the day, as investors squared positions ahead of the FOMC meeting. Expectations the Fed will leave rates low for an extended period were equity supportive.
• FI View: UST rallied after the FOMC statement. As we have shifted the beginning of the tightening cycle to early 2011, we now expect yields to remain relatively close to current levels for the next months. We will publish updated yield forecasts soon.
• GE: Today, Germany will tap DBR Jul20 by EUR 5bn. The bond offers ca. 5bp of yield pick-up vs. DBR Jul19, in line with average. 10Y Bunds trade cheaper vs. swap than at end-2009, but with high supply and possible further abating of Greek woes, we do not expect a richening.
• GR: S&P's decision to remove the credit watch on Greek government debt was supportive for GGBs. The 2Y spread vs. Bund tightened 20bp, the 10Y by 9bp. The CDS also benefited, tightening by about 4bp.
• FX: Abating worries about EMU ratings offered some relief to markets, but this was not enough to sink the greenback in full, even after a dovish FOMC statement. More attempts to do that will be made now, but a tight trading range should prevail, due also to the quite light data calendar.
• EUR: Remarks on Greece and Spain helped sentiment, but failed to spark heavy EUR-USD buying. The "rounding bottom" pattern now visible on daily charts is tempting, but EUR bulls still need a full break of 1.3840 at least to get more convinced to go long here.
• JPY: The BoJ doubled its lending program, but the JPY failed to capitulate. We would avoid heavy USD-JPY long positions before the Japanese FY has ended and we prefer buying EUR-JPY below 124.50.
• GBP: Cable below 1.50 has been a buying opportunity and this was also confirmed by the sharp reaction after the FOMC outcome. Cable staying above 1.52 is crucial for a new assault on the 1.53 area, even in case the BoE minutes underline weakness in the economy.
• CAD: A parity test for USD-CAD is more and more at hand, with 1.01 remaining the last intermediate support, as the loonie dollar is also benefiting from higher commodity prices (and copper in particular).