A series of attacks at Brussels airport and metro casts a pall over the market. The attacks come as Europe prepares what for many will be a long holiday weekend. Gold, the dollar and yen seem to have been the beneficiaries. Bonds are generally firmer and equities lower. However, in late morning activity in London, the markets began stabilizing. 

Sterling remains the weakest of the major currencies. It is nearly as much as it was yesterday (0.7%) against the dollar. Osborne has been forced to scrap some welfare cuts, and this opens a new GBP4.4 bln budget gap.  

Such climb downs and missing self-imposed caps and targets have become characteristic of the Chancellor in Cameron’s government. However, within the backdrop of the referendum is having a greater toll. Cameron’s hope that a referendum would unite the party seems to be doing the exact opposite.  

Moody’s assessment of Brexit could have been worse. It argued that the costs would outweigh the benefits, which is what most economists have concluded.  Moody’s also noted that there would be credit implications. However, it judged that the costs would be manageable, and the existing trade arrangement with the EU would likely be replicated.   

Separately, the UK reported softer than expected inflation. The headline rise of 0.2% was half of what the consensus forecast, and this left the year-over-year rate unchanged at 0.3%. The BOE’s inflation report in February anticipated a 0.5% increase in March. The core rate was unchanged at 1.2%. Input prices for producers was a little less than expected while output price was not quite as soft as forecast.  

Sterling had poked through $.145 before the weekend and today neared $1.4250.  The $1.4230 area corresponds to a 61.8% retracement of sterling’s gains in the wake of last week’s FOMC decision. A break would warn of losses closer to $1.40. 

Poor Japanese data will encourage speculation that the Bank of Japan may ease again as early as next month. The March manufacturing PMI fell to 49.1, the lowest since at least February 2013. The Bloomberg consensus forecast an increase to 50.5 from 50.1.The average for Q1 was 50.5 compared with 52.5 in Q4 15 and 51.3 in Q3 15.