Risk Boosted By China Stimulus Hope, Aussie Higher On RBA Minutes

Risk appetite in Asia was lifted by news that China is going to double its railway infrastructure investment in the second of of 2012, bringing the full year spending to nearly CNY 450b, comparing to first half's CNY 150b. The new raised hope that the overall stimulus from China would be higher than what markets have originally thought, even though it should still be far from the massive package in 2008. Asian equities are broadly higher with Japanese Nikkei up 54 pts while HK HSI is up 340 pts at the time of writing. In the currency markets the aussie is the strongest one this week on its close tie with China. Meanwhile, Sterling continues to outperform other European majors. Dollar and yen are broadly softer today so far.

Aussie is also additional boosted by RBA minutes, which struck a less dovish tone and lowered the chance of another rate cut in August. RBA noted that "with a material easing in monetary policy having occurred over the preceding six months or so, and with recent signs that the domestic economy had a little more momentum than had earlier been indicated, members saw no need for any further adjustment to the cash rate at this meeting." Markets are just pricing around 50% chance of another rate cut in August. Nonetheless, it's believed that RBA is still on easing bias and could cut another 50bps to 75bps over the next 12 months.

IMF lowered growth forecast for 2012 and 2013 to 3.5% and 3.9%, down from prior projection of 3.5% and 4.1% respectively. IMF noted that the largest signal risk to global growth is "associated with a potential escalation of the crisis in Europe" It hailed the outcome of last month's EU summit as a step in the "right direction" but also urged that progress on banking and fiscal union must be a priority for political leaders. Also, IMF warned that if the US could not deal with the so-called "fiscal cliff," there could be enormous shock to US as well as other advanced economies.

Fed Chairman Bernanke's testimony to Senate will be the major focus today. Bernanke could sound more dovish on the economy and pledge again that Fed is ready to act. However, he might just disappoint the markets again and stop short of signaling another round of quantitative easing. Bank of Canada is expected to keep rates unchanged at 1.00% today and could release a balanced statement that suggest the bank will keep rates unchanged in near-term.

On the data front, New Zealand CPI came in weaker than expected at 0.3% qoq,, 1.0% yoy in Q2. UK CPI is expected to be unchanged at 2.8% yoy in June, staying inside BoE's target range. German ZEW economic sentiment is expected to deteriorate to -20 in July but eurozone ZEW might improve to -18.3. US CPI is expected to moderate further to 1..6% yoy in June with core CPI down to 2.2% yoy. TIC capital flow, industrial production and NAHB housing market index will also be released.