Market Update - 1 March 2013

• Italy’s government bonds advanced for a second day amid speculation the nation’s lawmakers will set aside differences to form a broad coalition government after inconclusive election results this week.

• Spanish and Portuguese securities also rose as Italian Finance Undersecretary Gianfranco Polillo said a union of Pier Luigi Bersani’s Democratic Party and the group led by Silvio Berlusconi was “the only possible way.” Berlusconi, who left office in November 2011 with yields approaching euro-era highs, ran on promises to reverse austerity.

• US stocks erased gains in the final minutes of trading as investors prepared for rebalancing of indexes and The US Senate voted to keep USD 85 Bios of spending cuts in place. EU stocks and Italian bonds climbed for a second day while oil slid to yearly lows.

• Treasury 10-year notes gained for the first month since November as investors sought safety amid turmoil in Europe and the Federal Reserve reinforced its commitment to buying government debt to support the economy.
  
• The 10-year yield fell the most in a month since July as investors bet the start of $85 billion in automatic federal spending cuts tomorrow will hurt the U.S. economic recovery, boosting the case for monetary stimulus. Bonds rose today as data showed the economy grew less than forecast in the fourth quarter.

• Japan overtook China last year as the largest foreign holder of U.S. securities, the Treasury Department said. Fed Chairman Ben S. Bernanke told lawmakers this week a premature interest-rate increase would snuff out the recovery.
  
  In Asia, data will also be important with many PMIs released today. China will be the key focus following the dip in HSBC’s flash PMI to 50.4. The market is now looking for 50.5 and 50.6 from today’s NBS and HSBC numbers respectively, but there is some risk that the Lunar New Year effect could push the number even lower. Taiwan, Indonesia, India, Vietnam all also report PMIs.

• USDMYR is testing a lot of traders patience with very little action and I expect most are probably playing a tight range now with some possibly biased on the long side. Weekend around the corner will probably see some position squaring and not expecting much move on the pair till the PMI data is released.