Monday Overview

Out visiting clients in the second half of last week.  Still managed to monitor developments.  There are a number of take aways.  First, the best quarterly jobs performance since 2004 in the US failed to give the dollar a sustained lift.  This is because, with NY Fed's Dudley help, the market was reminded that US monetary policy has not yet reached its most accommodative stance.  QE2 is continuing, despite some hawkish comments from the hawkish wing of the Fed,  And this will likely be underscored with the release of the recent FOMC mintues.  The ECB is to hike rates Thursday this week.     

Second, the US consumer, which contributed mightily to Q4 GDP, is pullking back a bit and the March auto sales numbers were a bit soft, suggesting a soft retail sales report next week.

Third, while there is some pressure on Spain and Italian bonds, in general, the firewall still looks intact.  That is to say Greece, Ireland and Portugal remain isolated and European officials continue to treat it as a lqiuidity problem.  They apparently want to do this until 2013 when ESM replaces the EFSF. 

Fourth, UK data is mixed but the contraction that was experienced in Q4 10 is not being repeated in Q1.  BOE lagging behind ECB and sterling is duitfully lagging on the cross, but against the dollar, it looks to retest $1.63 in coming week or so. 

Fifth, the yen is weaker across the board.  Foreign investors have been good buyers of Japanese stocks through Q1 to the tune of almost $32 bln.  Japanese investors themselves are not doing much repatriation.  Yen weakness is partly a function of speculative longs liquidating.  In the week through last Tuesday, before the big breakdown, the net longs at the IMM were cut to 7k from 34.5k.  Subsequent price action suggests additional longs were cut later in the week.  The key level now is seen near JPY85.00.