Aussie Dives On CPI, Markets Steady Elsewhere Despite Political Uncertainties In Europe

Sentiments are generally weak today as weighed down by political uncertainties in Europe. Asian equities are broadly lower following the sell-off in US stocks overnight, which saw -102 pts fall in the Dow. But losses in Asian equities are limited so far. Most major currencies are staying above yesterday's low against the dollar and yen so far. The Aussie is the exception as steep sell-off is seen after a weaker-than-expected consumer inflation reading. The Dollar Index also failed to sustain yesterday's gain and is back trading at around 79.3 level for the moment.

Dutch prime minister Mark Rutte and his cabinet resigned yesterday after talks on a new austerity package failed over the weekend. Rutte hopped to agree on a deal to lower the deficit target to below EU's 3%. Rutte will address parliament today on interim measures and new elections. There are worries among investors that the political uncertain will eventually have the Netherlands lose its AAA credit rating. Meanwhile, there are also uncertainties in France after socialist Hollande, who pledged to renegotiate the fiscal compact, beat President Sarkozy in the first round presidential vote.

The Australian dollar is sharply lower today as Q1 CPI rose a mere 0.1% qoq versus expectation of 0.7% qoq. Year-over-year rate slowed sharply from 3.1% to 1.6%. RBA's trimmed mean CPI and weighted mean CPI also slowed more than expected to 2.2% yoy and 2.1% yoy respectively. Released yesterday, PPI unexpectedly dropped -0.3% in Q1 versus expectation of 0.5% qoq rise. Headline CPI is now within RBA's target of 2-3% yoy and is the lowest level since late 2009. A 25bps rate cut from RBA next week is a done deal. And the question now is whether RBA will cut 50bps in May, or have two 25bps cut in Q2.

The China Banking Regulatory Commission said in its annual report today that China's bank posted a combined net income of nearly $200b in 2011, a strong 39% growth from a year earlier. CRBC warned that it's "difficult to solve the European debt crisis in the short-term" and the downside risks facing the global economy have risen. The watchdog pledged to "strictly prevent risks from local government financing vehicles from growing," and "improve and enhance property loan risk checks."

Data released from the Swiss saw that the trade balance shrank to CHF 1.69b in March while UBS consumer indicator rose to 1.22. UK public sector net borrowing, Canada retail sales, US S&P Case-Shiller house price, consumer confidence, new home sales will be released later today.