Aussie Higher On China, Yen Weak On Tankan, PMIs Watched

Markets are a bit directionless as the week starts in spite of initial volatility. Aussie and Asian equities were lifted by stronger-than-expected Chinese manufacturing data but the boost faded as the session went on. Weak Japanese Tankan survey gave some pressure on the yen on BoJ easing expectations but weakness is so far limited. Meanwhile, the euro and other European majors, while firm, are still bounded in range after EU's ESM/EFSF statement over the weekend. We'll need some fresh inspiration in European session, possibly from PMI data, to trigger some meaningful moves.

Euro zone finance ministers have agreed to mobilize an "overall firewall" of approximately EUR 800b, more than USD 1T. The detail of the program is that before July 2012, EFSF is the main instrument. After July 2012, ESM is the main instrument and EFSF will only continue the program that has already started. But during the the transitional period between July 2012 and mid-2013, EFSF can still engage in new programs to "ensure a full fresh lending capacity" of EUR 500bn. And the overall ceiling of ESM/EFSF will be raised to EUR 700bn even after mid-2013, as programs started by then would continue. In addition to the mentioned EUR 700bn, EUR 59bn out of EFSF and EUR 53bn out of the bilateral Greek loan facility has already be paid. So altogether, the total is around EUR 800bn.

In China, the official PMI climbed to 53.1 in March from 51 the previous month. The better than expected (market expectations: 50.8) reading also signaled the country's manufacturing sector continued to expand. While the case of a hard landing is getting remote, monetary easing by the government is still needed. A similar measure complied by HSBC showed a fall to 48.3 in March, from 49.6 in February. The HSBC index has been weaker than official PMI over past several months as the former is more heavily weighted toward smaller firms. The HSBC index also showed a decline in export orders.

From Japan, the quarterly Tankan large manufacturers index was unchanged at -4 in Q1, much weaker than expectation of an improvement to -1. The data showed more large manufacturers are being pessimistic comparing to being optimistic even though the Japanese yen is already sharply lower comparing to last year's close of 76.3. Non-manufacturing index improved to 5. The data suggested that more easing is still needed from BoJ to depreciate the Japanese yen further to aid exporters.

Other data released saw Australian building approvals dropped sharply by -7.8% mom in February. More PMI data will be released today, including Swiss SVME PMI, euro zone PMI manufacturing final, UK PMI manufacturing and US ISM manufacturing In addition, Swiss retail sales, euro zone unemployment, US construction spending will be released.