With several central bank meetings this week, including the Federal Reserve, and Q1 GDP figures from the UK, US and Spain, and month end position adjustments, ahead of the May 1 holiday, it promises to be an eventful week. However, it gets off to a slow start. The US dollar is firmer, but largely confined to its pre-weekend ranges. The US dollar has been confined to around a half a big figure against all the major currencies.Â
There have been three developments to note today. First, Fitch downgraded Japan’s credit rating to A from A+, citing the lack of stronger fiscal reforms in the FY2015 budget. There was no replacement of the sales tax increase that had been postponed. The outlook is stable. The yen popped, poking through the JPY119.40, but quickly came off. Foreign investors hold relatively small amounts of Japanese government debt, and investment grade status was retained. Â
Second, Chinese shares continued to rally, but the yuan itself sunk to one-month lows. There are two main stories swirling for attention. The Shanghai Composite rose 3%, its biggest rise in three months amid speculation that the government may merge a number of state-owned enterprises (SOE). The idea is that currently there are 112 centrally administered SOEs. These may be consolidated into 40 enterprises. The other story is that the PBOC is discussing unconventional measures, including direct purchases of local government bonds from the market or buying bonds from commercial banks.Â
Third, more people are beginning to recognize what we pointed out here last week that Greek contagion may be increasing.  Greek bonds are modest pressure with the 10-year yield rising 4 bp. Spanish, Italian and Portuguese yields are also 2-3 bp firmer today. Core bond yields are lower.  Last week’s Eurogroup meeting was a big bust, as frustration with Greece on procedural and substantive grounds was expressed privately and taken to the media. Ironically the very same ministers have been critical to Varoufakis for his “leaks” to the press.Â
