Risk appetite firmed slightly in the Asian session, as the government of Abu Dhabi agreed to fund $10bn to Dubai World, with $4.1 used to repay property unit Nakheel. Markets rallied on the positive news, but sentiment still feels heavy, as worries abound over quasi-sovereign and sovereign debt. EURUSD traded between 1.4599 and 1.4685, while USDJPY slipped to 88.38 from 89.26. After a precipitous fall on Friday, Gold was able to climb to $1127 on the news, which also sent Asian and European equities higher. With risk clearly in focus, markets will be watching Greece and their measures to tackle the budget deficit today. While Trichet has already stated that the ECB will not allow a member country to fail, further unimpressive handling of this situation should continue to pressure risk correlated trades. The highlight of this light calendar, low liquidity day will be the Eurozone industrial production and employment.
A slew of G10 central banks (see central bank report) are meeting this week, but the highlight will be the FOMC. We expect rates to stay put and Bernanke to use very similar language, as in previous meetings. The accompanying statement should maintain the Fed's commitment of keeping rates ultra loose for an “extended period” with modest optimism in the area of labor and financial markets. Overall, the meeting should be positive for risk appetite.