US Treasury yields improving

Economics

This week the economic focus in the US will be on December employment and business survey data for the non-manufacturing sector. We expect non-farm payrolls to increase to 175K in December, in line with recent positive US economic growth data.

The European Commission business sentiment survey for December is expected to show a small decline in industrial confidence while consumer confidence remains stable.

Japanese household spending should have rebounded in month-on-month terms in November. It is still too early to assess the economic impact of the tsunami disaster which is estimated to have claimed at least 150,000 lives in Indonesia, Sri Lanka, Thailand and India.

Foreign exchange

Euro/Dollar. Coming below 1.3385, warns of further losses back to 1.3200

USD/JPY: As long as 104.00 holds, the outlook would remain down into the 101.30/100.70 area.

Fixed income

Short-term US yields continue their upward move, with the 2yr Treasury yield now firmly above 3%. The Fed's decision and speeches, and economic data over the last week, should support that move
going forward.

Euro yields hedged slightly higher on the back of higher leading indicators and inflation numbers in the Eurozone. We expect the yields to move sideways till the publication of the employment figures in the US next Friday and resume their upward trend thereafter.

Equities

Last week markets ended only marginally higher than the closing quotes from the day before
Christmas.

In spite of the commotion caused by the horrible tsunami catastrophe in South-East Asia, volumes remained low and the impact on equity markets was marginal.

Even emerging markets held up very well, while Western insurers initially felt some pressure as investors were worried about the insured damages in the region.