Global stock and bond markets are generally lower. Fixed-income markets are weighed down by supply concerns. The Nikkei fell victim to profit-taking after its recent spectacular run and was off 2.2%. European bourses are lower, led by Germany, France and the Netherlands. If it weren't for the continued restructuring of European businesses through mergers and strategic alliances, share prices would be still lower. The dollar is modestly firmer across the major foreign currencies.

Like a basketball team fighting for a berth in the NCAA's Final Four, Japanese officials used a full-court press to cap the yen's recent strength. The Ministry of Finance's


threatened intervention to correct what he called an excessively strong yen. Kuroda also called for foreign-exchange stability. Driven by naked self-interest, Japanese exporters called for the dollar to rise toward 120-130 yen. The dollar is flirting with resistance in the 118.70-80-yen level. Overcoming this would give the dollar scope toward 119.50 yen, but the reluctance of many dealers to take on fresh yen exposure ahead of the fiscal year-end may see the dollar stop shy of that level.

Japanese bonds slipped a touch lower, with the yield on the bond rising 3 basis points to 1.695%.

Volume was reportedly light as the market remains cautious ahead of tomorrow's 1.4 trillion-yen sale of new 10-year bonds. Market participants are concerned that given the rally in government bonds in recent weeks, the coupon on the new issue may be 1.8% rather than the 1.9% coupon that prevailed at 10-year bond auctions over the last couple of months.

European bonds are lower for the third consecutive session, with yields generally rising 1-3 basis points. Tomorrow the German government will auction 5 billion euros of new 10-year bonds with a 4% coupon. Another 5 billion-euro sale of 10-year bonds is also planned for late April. Many institutional investors reportedly are already overweight duration, limiting their hunger for the new issue. Meanwhile, European equity markets are generally 1%-2% lower, negating the bullish technical outlook suggested in this space in recent days.

Merger and alliance activity is helping cushion the weakness and preventing a greater deterioration of market breadth. Of note, a report in the

Financial Times

providing details of fourth-quarter losses suffered by banks operating in the U.K. is weighing on those share prices. Switzerland and Germany have the dubious honor of the weakest European equity markets here in the first quarter, down 7%-8% in dollar terms.

In economic news, Italy posted a much larger-than-expected rise in January industrial production.

Industrial output rose 0.3% year over year in January after a 6.3% year-over-year decline in December. Owing to the adjustments in the seasonal calculation, no monthly change was reported. It is difficult to find much consolation with the stronger-than-expected report, as the Italian government is in the process of lowering not only this year's growth forecast but next year's as well. Elsewhere, German states have begun releasing their March inflation data. Bavaria is the first and it reported a somewhat larger-than-expected rise of 0.2% for a 0.5% year-over-year rise. The rise in energy prices appears to be the main culprit.

For its part, the U.K. reported a smaller-than-expected rise in consumer prices for February and this is serving to strengthen ideas that the


will cut rates when it meets in early April. The U.K.'s core measure, RPIX, rose 0.3% for a 2.4% year-over-year rise, compared to the 2.5% target. It is the slowest rise since November 1994. Prices had fallen 0.4% in January, but U.K. prices tend to rise in February as retailers raise prices on their new stock. The short end of the U.K. yield curve is firmer and the long end pared its losses in response to the report.

The pound has weakened and is vulnerable to additional losses.

Sterling's technical tone is poor and bearish divergences are beginning to appear. The euro is rising through 0.6700 sterling. Trend line resistance is not seen until 0.6800 and scope may extend toward 0.6900 over next couple of weeks. For those more comfortable with the old mark cross, look for sterling to slip back toward 2.86 marks.

Given the interest-rate differentials and budding bullishness toward the Canadian dollar, short-term speculative forces may be looking at shorting sterling against the Canadian dollar. The U.S. dollar appears to be tracing out a double top pattern against the Canadian dollar near C$1.5300. The neck line near C$1.5100 was successfully violated yesterday on a close basis. The measuring objective of the double-top pattern comes in near C$1.4900. Yesterday Canada reported an amazing 1.7% jump in January retail sales. In his speech last night,

Bank of Canada

governor Thiessen indicated that although inflation would rise later this year, it would remain at the lower end of the BOC's 1%-3% range. Core inflation fell 0.8% in February. Previously, many in the market thought the BOC would cut 25 basis points off the overnight rate to completely unwind the fourth quarter 100-basis-point hike, if the U.S. dollar fell through C$1.48. Now some observers think the BOC will move on a break of the C$1.49 level.

Lastly, we'd be remiss if we didn't acknowledge that OPEC meets today in Vienna to ratify the production cut agreements that have already been negotiated.

Given the recent sharp run-up in prices, it would not be unprecedented to see some "buy the rumor, sell the fact" type of trading. Nevertheless, there is little technical evidence that the market is done with rallying oil prices, which are up in the neighborhood of 40% since the end of last year.

The anticipated cuts in production, coupled with ideas that Asian demand has bottomed, is providing the fundamental underpinnings. When contemplating the impact on the currency market, keep in mind that many oil-importers lock part of their demand through long-term contracts. Also, the overall economies of many industrialized countries that produce oil actually fare better with lower oil prices rather than higher.

Finally, note that higher oil prices might note generate price pressures.

Rather if not accommodated by officials, higher oil prices could be an additional source of pressure on profits, if costs cannot be passed on, or retard growth, if the money spent for energy saps spending in other areas.

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