The Fed was divided in tone yesterday – both Williams and Yellen stressed "gradual tightening" but the former with more urgency than the latter. This division of central bank emphasis is a global consequence of multifaceted policy options.
It comes down to the conditions Yellen identified. We see upside risks to core US inflation, a dollar that is stable to weaker, and a Euro area economy that outperforms consensus – all of which suggest that the Fed should be raising rates this year.
Euro area confidence data should show some upside risks in the economy, though confidence data must be treated with caution as exaggerating underlying trends. German inflation is due – correlation of core inflation rates across the Euro area is very low, suggesting local forces will drive prices.
Japanese production data was weak, albeit partly due to distortions in the steel and auto sectors. However, the trend of "hollowing out" has been established for some time (foreign investment outside Japan rising as a share of domestic investment).