The US market was closed yesterday so that the focus was on Europe and Asia. EU finance ministers ruled out expanding the size of the EFSF for now while Spain offered a premium over its existing debt to sell 6B euro of bonds after 2 auctions scheduled to be held on Thursday was cancelled. The euro slumped while yield spreads between peripheral bonds and German bunds widened. In the commodity markets, WTI crude oil fell after faltering below 92. Decline in the euro and re-opening of Alaskan pipeline weighed on oil prices. Gold changed little with price hovering around 1360. Positive impacts of renewed sovereign concerns in the European periphery were offset by strength in the US dollar.

EU finance ministers started a 2-day meeting yesterday in Brussels to discuss about strategies to curb sovereign crisis. Although rumors said Germany might not oppose the idea, it turned out that German Finance Minister Wolfgang Schaeuble resisted expanding the size of the EFSF for now- it will be delayed until March. EU Economic and Monetary Affairs Commissioner Olli Rehn said finance leaders would improve the 'currently existing backstops so that the so-called market forces can't have the slightest doubt about our capacity to act even in most stressed scenarios'. He also stressed that they EU will implement more rigorous stress tests on banks in the first half of this year. The market was not convinced by these comments. The euro tumbled against the US dollar and Japanese yen and 10-year German Bunds firmed modestly as investors worried that finance ministers may fail to stem debt crisis.

The euro rallied last week amid anticipation that sovereign crisis in the region stabilized and ECB might raise the policy rate earlier than previously expected. However, European Central Bank Governing Council member Athanasios Orphanides said the market has markets had gone too far in anticipating ECB rate rises. In an interview in Frankfurt, Orphanides said policymakers 'do not see any need to change the view that the current degree of accommodation in our monetary policy is consistent with price stability in the euro area in the medium term'. This might have disappointed some euro-bulls.

Apart from macroeconomic uncertainties, crude oil fell as the Alyeska Pipeline Service said it had completed repairs and restarted the Trans Alaska Pipeline System. Meanwhile, OPEC said in a report there is an 'adequate cushion of supply in both inventories and spare capacity to meet the supply needs of the market'. OPEC raised global oil demand forecasts to 86.1M bpd from 85.9M bpd for 2010 and 87.3M bpd from 87.1M bpd for 2011. OPEC production was also revised up slightly to 29M bpd from 28.9M bpd for 2010 and 29.3M bpd from 29.2M bpd for 2011.

The BOC will be meeting today. We expect policymakers to leave the policy rate unchanged at 1%. However, the accompanying statement may contain more hawkish growth outlook given recent strong economic data and optimism in US growth prospect.