The Japanese yen is broadly higher as the week starts as Asian equities are genearlly pressued by risk aversion. Sentiments were weighed down by the concern over tensions in Ukraine and disappointing data from China. At the time of writing, Nieekie is down -27 pts or -0.2%, HK HSI down -290 pts, or -1.3%. Technically, USD/JPY breached 101.95 minor support today which should now pave the way for a test on 101.32 support. The AUD/JPY, meanwhile, broke a minor support at 94.51 to resume recent decline. The EUR/JPY and GBP/JPY, however, are staying in familiar range in spite of today's selloff. Today's focus will be on 141.11 in EUR/JPY and 171.25 in GBP/JPY. A break of these levels would likely trigger more broad based strength in the Japanese yen.
The HSBC China PMI manufacturing was revised down to 48.1 in April. It was, however, higher than March's 48. Yet, the manufacturing sector of the world's second largest economy stayed in the contractionary territory. HSBC indicated that the reading suggested that "domestic demand contracted at a slower pace, but remained sluggish". In the detailed report, it's shown that "both the new export orders and employment sub-indices contracted, and were revised down from the earlier flash readings". These suggested that "the manufacturing sector, and the broader economy as a whole, continues to lose momentum". The HSBC believes that the Chinese government has to implement "bolder actions" to bring the economy's momentum.
Elsewhere, Australia TD securities inflation rose 0.4% mom in April, building approvals dropped -3.5% mom in March. Eurozone sentix investor confidence and PPI will be released in European session. EU will also release updated economic forecasts. US will release ISM non-manufacturing composite, which is expeted to rise from 53.1 to 54.3 in April. EU
Looking ahead, three central banks will meet this week including RBA, ECB and BoE. RBA will very likely leave the cash rate unchanged at 2.5% at tomorrow's meeting. Australia's inflation surprised to the downside in 1Q14. This should give the central bank more flexibility in keeping its monetary policy on hold. Further deceleration of inflation in the near-term would trigger the RBA trim its near-term forecasts in its Statement on Monetary Policy. Indeed, we expect the downgrade would be seen in the report due May 9. We expect the central bank to reiterate that the "uncomfortably high" exchange rate would hamper the growth outlook.
The ECB is also expected to stand on the sideline in May. Disappointing April inflation signaled increase in deflation risks. However, it seems that the ECB would not be moved by this reading alone and ease further. Although President Draghi attempted to tame appreciation of the euro, but noting that excessive strength in the single currency might lead to QE, he later indicated that such measures were still far away. We believe verbal tricks should not succeed in curbing the rise of the single currency if not accompanied by real stimulus. BoE is expected to leave policies unchanged and issue a brief statement.
Here are some other higlights of the week:
- Tuesday: RBA rate decision; Eurozone sevices PMI, retail sales; UK services PMI; Canda trade balance; US trade balance
- Wdenseday: New Zealand employment; Australia retail sales; US productivity
- Thursday: Australia employment; China trade balance; Swiss CPI; BoE rate decision; ECB rate decision; US jobles claims
- Friday: China CPI and PPI; German trade balance; UK industrial and manufacturing production, trade balance; Cnada employment