No such thing as a free lunch

Economics

This week we expect US headline consumer price inflation for February to rise in line with higher oil prices while underlying inflation grows at a more moderate pace.

The Federal Reserve is likely to raise interest rates by 25 basis points at its Tuesday meeting. We expect German Ifo business confidence for March to improve in line with the latest ZEW index. French consumer spending for February could see some setback after the recent strong growth.

Foreign exchange

Euro/Dollar: The euro remains trapped between resistance at 1.3450/1.3565 and support at 1.3300/1.3250.

Dollar/Yen: Sideways consolidation between 105.20 and 103.50.

Fixed Income

The profit taking continues in almost all spread products, on the back of prospects for higher interest rates.

The downgrade of General Motors' rating to only one notch above junk has also remind investors that credit risk is indeed a risk and that buying corporate bonds is not a free lunch. Emerging markets are also suffering after the long bull run they enjoyed this year.

Equities

Modest losses characterized last week's stock indices. Main reason were again the oil prices. Although the Opec decided to increase its daily production with 500,000 barrels, the oil prices rose to new records.

Investors took a more cautious stance towards equity markets and preferred defensive sectors, like energy, utilities and European pharma stocks.