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NEW YORK ( BBH FX Strategy) -- The dollar is posting modest gains against most of the major and emerging-market currencies to start what is likely to be among the most important weeks in the first quarter, with numerous central banks meeting, first-tier economic data and the deadline for the Private Sector Involvement in Greece.
The yen is bucking the trend, recovering from its preweekend losses helped by cross-rate gains. Global equity markets are lower, with the MSCI Asia Pacific Index losing almost 1%.Chinese Premier Wen Jiabao cut China's GDP target this year to 7.5%, and the sub-50 reading on the official service sector PMI (48.4 from 52.9) is taking a toll on regional bourses and sending the yuan to a four-week low against the greenback. European equities have followed suit, as a downward revision from the flash service PMI (48.8 from 49.4 flash reading and 50.4 in January) and concerns of light participation in the PSI weighed on prices. The Dow Jones Stoxx 600 is off nearly two-thirds of a percent near mid-day in London, with basic materials and the financial sector the heaviest sectors with only health care advancing. Given the disappointing data and equity losses, and pullback in gold and oil prices, one would have expected a greater reaction in the debt markets than the largely flat reading from the core and modest losses in the European periphery. There are three main highlights of the week ahead outside of the plethora of central banks that meet, for which we do not expect any change in the G10, but do expect Brazil to deliver another 50 bp cut in the Selic rate on Thursday. First, the PSI "invitation" to participate in the bond swap ends 3 p.m. EST Thursday. Given the complications of the process, it is expected that many investors will have to really decide by Tuesday. Press reports indicate a slow start and soft participation. Investors seem more cognizant that the risks of triggering the retrofitted collective action clauses are higher. Recall that 75% must participate to avoid this, which would most likely been seen as a credit event in the sense of triggering credit default swaps.