An eerie calm shrouds the markets the morning after the first NATO airstrikes on Yugoslavia.

Equity markets have been underpinned by Wednesday's relative stability on Wall Street, and bargain hunters have come out in force after the recent declines in the


. Bond markets are also generally firmer. For its part, the dollar remains mired in its recent trading ranges against the yen and euro. Against the yen the range is roughly 117 to 118.50. The euro's narrow range $1.08 to $1.0950.

Officials at Japan's

Ministry of Finance

again cautioned against bidding the yen higher, warning that the agency would take appropriate action, a phrase that is understood by market participants as a euphemism for intervention. The sense among many participants is that Japanese officials prefer to see the dollar finish the fiscal year close to 120 yen.

Part of the difficulty appears to stem from continued strong foreign demand for yen to buy Japanese equities, along with domestic entities repatriating capital. While the latter trend is winding down, the foreign appetite for Japanese stocks may continue into the second quarter. In addition to global equity funds rebalancing their portfolios to bring their Japanese weightings closer to benchmark measures, there has been some scuttlebutt suggesting that some large, leveraged funds are shorting U.S. stocks and buying what are perceived to be relatively undervalued Japanese equities.

The BOJ decided in a split vote to keep policy unchanged at today's board meeting.

There still appear to be members who would like the BOJ to adopt a quantitative target for money-supply growth or inflation. Meanwhile, note that the Ministry of Finance has decided to adopt international practices and treat the latest 10-year bond auctioned as its benchmark. This means that the 10-year bond auctioned yesterday becomes the 10-year benchmark. Its yield slipped 6 basis points to 1.88% today as volume was damped by the approaching fiscal year-end.

Gains on the European bourses have been modest, in the neighborhood of 0.5%-1% in the European morning.

Further recovery looks to depend on the performance of the U.S. market today. European bond markets are also modestly firmer, with the yield on the benchmark 10-year German bund off about 3 basis points to bring the yield back below 4%. The spread against U.S. 10-year notes stands at about 124 basis points, compared with 146 basis points at its widest in a decade seen late last month.

Of note, the

Swiss National Bank's

Gehrig echoed yesterday's comments by the




and board member Noyer, recognizing that the risks of deflation are real. Gehrig ruled out a near-term rate hike. At 1%, Switzerland's discount rate is the lowest after Japan. There is some speculation that if Continental European growth slows more, or if the euro weakens, the SNB could cut rates again. The ECB next meets on April 8.

Sweden's Riksbank cut key money market rates by 25 basis points to bring its repo rate below the eurozone's for the first time.

The Swedish repo rate stands at 2.90%, compared to the 3% that prevails in countries that adopted the euro. Among other things, the Riksbank's quarterly inflation report noted that global economic prospects have deteriorated slightly since the end of last year. Sweden forecasts its own inflation to remain below 2% for the next two years. The

European Commission

signaled it would be reducing its growth forecasts for the eurozone as early as next week.

Italy's Prodi has been selected to head up the commission following the

en masse

resignations amid corruption charges earlier this month. Perhaps it's the cynic in me, but I suspect that Italy's Prime Minister


was only too happy to see one of his biggest domestic political rivals move to Brussels. Italy, among the most indebted EU countries, agreed last week to boost its EU contribution by 516 million euros ($568 million) between 2000 and 2006. It will change the proportion of the value-added tax that is earmarked for the EU. Reports suggest Italy's EU partners have been critical of the extent to which the VAT is evaded in Italy.

This concession by Italy appears to have helped smooth Prodi's ascension. This will also likely allow Germany to reduce its contribution to the EU. Nevertheless, there doesn't appear to be much headway being made on Agenda 2000 at the ongoing European Summit. Key but controversial decisions, like repealing the U.K.'s rebate or dramatic farm and regional aid reforms, remain elusive.

Market participants will be closely watching the performance of the Brazilian real.

The central bank surprised the market yesterday by cutting overnight rates to 42% from 45%. Many observers had expected the central bank to wait until its next meeting on April 14 to consider cutting rates. Officials seem to have been emboldened by the success of Tuesday's auction of fixed-rate instruments and the strength of the real, which at 1.84 to the dollar is near its best level since early February.

Also, there are some signs that inflation pressures are not accelerating. Sao Paulo reported its 30-day inflation to the middle of March slowed to 0.96% from 1.4% in the month through the middle of February. The Brazilian stock market is up nearly 30% in dollar terms over the past month. Thus far in dollar terms, the Brazilian stock market has outperformed most European bourses here in the first quarter.

The Mexican stock market is also among the best global performers, up almost 23% in dollar terms this year.

Price pressures also seem to be receding, at least on the margins. Inflation for the first half of March was came in at 0.48%, the slowest in nearly 10 months and below expectations. The retail sales report was, however, disappointing. Retail sales rose 0.7% in January after a strong 2.7% increase in December. The market had been expecting that retail sales held up much better. The yield on the 28-day cetes, the key money market rate, has fallen around 800 basis points since early February.

Marc Chandler is an independent global markets strategist who writes daily for At the time of publication, he held no positions in the currencies or instruments discussed in this column, though positions may change at any time. While he cannot provide investment advice or recommendations, he invites you to comment on his column at