Morning Bid Yen Alert Keeps Markets Tight

Ankur Banerjee's outlook for the day ahead in European and global markets

Another day later, another warning from Tokyo curbed the yen's decline, with the Asian currency already very close to the 34-year low of 151.975 it hit last week, prompting repeated warnings of intervention.

These warnings have worked to some extent, and while the USD/JPY exchange rate remains above the 151 level, the yen's downtrend has leveled off. The most recent rate was 151.745 yen to the dollar.

Japan's finance minister, Shunichi Suzuki, reiterated his warning of a bear market for the yen on Tuesday as Tokyo tries to prevent the currency's decline from destabilizing.

After the initial shock of stronger-than-expected U.S. manufacturing data, which made markets skeptical about the timing of the Fed's interest rate cuts, the market seems to be taking more and more evidence of a strong economy in stride.

While investors remain wary of the "higher is better" narrative, most analysts believe the Fed is more concerned with inflation (which has moderated) and the labor market (payrolls data will be released later this week).

Futures indicate that European stocks will open higher as the region's stock markets reopen after Friday and Monday's holidays.

The pan-European STOXX 600 will be the focus of attention as the index closed at an all-time high last week and will continue to lead the way in the second quarter after posting a 7% gain in January-March.

A series of manufacturing activity data from various European countries, as well as inflation data from Germany, will also be the focus for investors to assess the health of the region's economy.

Manufacturing activity in the eurozone may have contracted in March, but optimism about the year ahead will be the focus, according to a Reuters poll. Manufacturing data from France, Germany and the UK for March will also be released later in the day.

Investors will analyze these data to determine when the ECB is likely to start the rate-cutting cycle.

A growing number of ECB policymakers are in favor of a rate cut, and action is most likely to be taken at the June meeting.

In a Reuters poll conducted last week, all 77 economists expect the ECB to leave the deposit rate unchanged at 4.00% on April 11.About 90% of the 68 respondents predicted the first rate cut would come in June.

Key dynamics likely to affect Tuesday's market:

Economic events: Manufacturing PMI data for March in France, the UK, Germany and the Eurozone, and preliminary inflation data for March in Germany

Debt auctions: Germany - reopening of 2-year bond auction; France: reopening of 3-month, 5-month, 6-month and 1-year bond auctions

(Written by Ankur Banerjee; edited by Muralikumar Anantharaman)