Daily Report: Markets Steadily In Consolidation, Reaction To G8 Muted

Markets are relatively steady as the week starts. G8's growth talk over the weekend triggered little reactions. As noted before, risk markets were oversold last week and some consolidative price actions are likely. But risk assets are vulnerable to another sell-off on European debt crisis development. Greece could be off the spotlight for a little while since the next election is already set for June 17. Focus has already turned to the deteriorating banking sector in Spain and other countries. Additionally, the euro is seen deeply oversold as CFTC data showed net euro short jumped to record 174k contracts in the week ended May 15 and will likely consolidate against dollar and yen first.

The focus of the G-8 meeting over the weekend was undoubtedly on the sovereign debt crisis in the euro-zone. It was stated in the communiqué that world finance leaders "agree on the importance of a strong and cohesive euro-zone for global stability and recovery, and we affirm our interest in Greece remaining in the euro-zone while respecting its commitments." Concerning the global economic outlook, the leaders acknowledged persistence of "significant headwinds" and they pledged to "take all necessary steps to strengthen and reinvigorate our economies and combat financial stresses, recognizing that the right measures are not the same for each of us." However, there were no further detailed plans on how to resolve the problems.

In China, Premier Wen Jiabao stated that the government "should continue to implement a proactive fiscal policy and a prudent monetary policy, while giving more priority to maintaining growth." And Wen said that China should put "stabilizing growth in a more important position" while he refrained from talking about inflation as the country's economy is "facing increasing downgrade pressure." The comments indicated that the government sees more is needed to be done to stimulate growth. It's expected that the PBOC will implement further RRR cuts following last week's reduction which would inject RMB 400B to the banking system.

On the data front, UK rightmove house price was unchanged in May. Rightmove said that "if Greece defaults then the knock-on effects could be a further reduction in mortgage availability and weakening consumer sentiment causing even more potential buyers to sit on their hands." In Japan all industry activity index dropped -0.3% mom in March.