'Human error' triggers rally

"Human error" was to blame for an early release of the latest policy minutes, according to the Federal Reserve, but markets weren't complaining.

Stocks were up and credit spreads rallied after the accidental publication. However, the minutes were relatively hawkish, with the Federal Open Market Committee apparently leaning towards scaling back QE this year. This chimes with recent speeches from various FOMC members - many have expressed a desire to reduce bond purchases in the near-term.

Markets are dependent on excess central bank liquidity, and risk aversion often follows hawkish FOMC minutes. But on this occasion it added momentum to a rally. The Markit iTraxx Europe was 4bps tighter at 111bps, approaching its March pre-roll level, while the Markit iTraxx Crossover rallied by 16bps to trade at 454bps.

The contrarian reaction can probably be explained by the fact that the FOMC meeting was held prior to last week's disappointing non-farm payrolls report. Only 88,000 jobs were created in March, and the lacklustre number may cause the Fed to think again and delay tightening policy.

In Japan, the central bank is moving in the opposite direction from its US counterpart, and the promise of large-scale monetary easing continued to boost risk assets. Peripheral credits in the eurozone are benefiting, and they were again among the strongest performers today. Lower supply during the earnings blackout may provide further support to spreads in the weeks ahead.

Away from the macro picture, banks are in focus ahead of Wells Fargo and JPMorgan reporting earnings on Friday. The latter saw the outlook on its 'A' rating raised to 'stable' from 'negative' by S&P late yesterday. The agency cited JPM's swift action in addressing risk management problems in its Chief Investment Office. S&P's move had a negligible impact on JPM's spreads, which were steady at 85bps.

S&P wasn't so kind to Deutsche Bank, which saw its 'A+' rating put on negative CreditWatch. The agency said higher litigation costs, as well as difficulties in reducing risk-weighted assets, contributed to its decision. Again, the action didn't affect the bank's spreads - they tightened 2bps to 112bps.

However, it is worth noting that despite having a superior rating to JPM, Deutsche trades wider than its US rival. This reflects the underperformance of European banks compared with the US sector since the start of the year.

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