Financial markets traded quietly yesterday as US market was closed on Martin Luther King holiday. In the Eurozone, S&P has also downgraded the rating of EFSF by one notch to AA+ after downgrades of a number of Eurozone countries last week. Yet, the reduction of the rating of the EFSF was probably anticipated as Germany's Chancellor stated over the weekend that she was of the opinion that the EFSF necessarily has to be AAA ... AA+ is also not a bad rating'. Investors also appeared to have shrugged off the French downgrade after the country held a successful auction yesterday. The news sent European bourses higher with the CAC 40 the DAX gaining +0.89% and +1.25% respectively. Today in Asia, release of China's macroeconomic data was in focus. Growth slowed as expected but top market forecasts.

China's GDP expanded +0.89% y/y in 4Q11, the slowest pace in 10 quarters amid moderation in exports due to economic headwinds in the Eurozone and the US. The world's second largest economy grew +9.2% y/y for 2011. It's likely that growth will continue to trend lower to around +8% by mid-2012. While soft-landing is still our base scenario, the Chinese government is expected to implement measures, such as lowering reserve requirement ratio and interest rates, to stimulate economic growth. Meanwhile, fixed asset investment rose +23.8% in 2011 while retail sales soared +17.1% during the year. Industrial production climbed +12.8% y/y in December, up from +12.4% in November. For 2011, industrial production grew +13.9% on annual basis.

At the BOC meeting today, policymakers are xpected to keep the overnight rate unchanged at 1% in January. While both external economic headwinds and domestic problems are posing threats to Canada's economic outlook, recent encouraging macroeconomic data from the US should help the BOC buy time in assessing the big picture before making a decision. It's likely that the central will leave the monetary policy as it is for the rest of the year. Should the Fed announce in coming meetings that interest rates will stay unchanged at exceptionally low levels longer than mid-2013, the BOC would even be harder to alter its policy.

Concerning other macroeconomic data, the US Empire State Manufacturing Index probably increased to 10.5 in January from 9.53 a month ago. Inflation in the Eurozone might have eased to +2.8% y/y in December from +3.0% a month ago. Core CPI probably remained stable at +1.6%. Eurozone's ZEW economic sentiment might have improved to -48.7 in January from -54.1 in the prior month.