Sentiments Stabilized On ECB SMP Hope, Aussie Rebounded On Job Data

Sentiments stabilized somewhat on talk of resumption of ECB's SMP on Thursday. Asian equities were broadly higher, recovering some of last week's lost ground, following the 90 pts recovery in the Dow. Dollar and yen are soft against most major currencies but most pairs are kept largely in range.

Except for that, notable strength is seen in Australia dollar after solid job market report. Australian economy added 44k jobs in March, much between then market expectation of 6.5k while unemployment rate was unexpectedly unchanged at 5.2%. Speculation for another rate cut from RBA on May 1 cooled, nonetheless still stands at around 80%. Traders are treating the recovery in AUD/USD cautiously as a more important piece of data to watch is the quarterly CPI reading to be released later this month.

Fed Vice Chairman Yellen, a known dove, presented a few models and rules at New York University that suggested Fed would keep interest rates low beyond late 2014 till 2015 and possibly later. Yellen noted that a "highly accommodative" policy stance is appropriate in present circumstances and she anticipated that "slack in the labor market will continue to restrain growth in labor costs and prices." Meanwhile, she also expected that the "latest round of gasoline price increases will also have only a temporary effect on overall inflation."

The Fed’s latest Beige Book revealed that the US economy continued "to expand at a modest to moderate pace" with the most expansion in the manufacturing sector. Demand for professional business services shown "modest to strong growth" while retail spending was "positive." Banking conditions were "largely stable" and there were improvements in loan demand and increase in credit quality. Concerning the job market, employment was "steady or showed a modest increase across many Districts". Yet, upward pressure on wages was "constrained" and overall price inflation was "modest."

BoJ governor Shirakawa said Japan still faces the "critical challenge of overcoming deflation and returning to a sustainable growth path with price stability." And Shirakawa reiterated his commitment to pursue "powerful monetary easing" to meet the inflation target. Meanwhile it's reported that the Democratic Party of Japan has asked four members of BoJ board to meet later this month to urge the back to increase the easing program.

The World Bank said "prospect for a soft landing" in China remained high and lowered its growth forecast to 8.2% this year, down from prior projection of 8.4%. Though, projection for 2013 growth was raised to 8.6%, up from prior estimate of 8.3%, as world trade pickup next year. It said that China's trade surplus could drop to 3.1% of GDP in 2012, down from 2011's 3.4% and the drop in surplus would result in a slower accumulation of forex reserves and trigger slower appreciation of yuan.

World Bank urged China to be "very flexible and to really look at the data as they come in month by month and be ready to move." Though, it is also said that cutting interest rates should be the "last resort" as they're still relatively low and could "sow the seeds for inflationary pressure and speculative activities later on."

Looking ahead, a main focus today will be on Italy's auction of EUR 5b in 2015, 2020 and 2023 bonds today. Trade balance from UK, Canada and US will be released. Meanwhile, US PPI and jobless claims will be featured.