Asian equities are trading broadly higher, with risk sentiment still buoyant post Friday?s better US NFP number and the Nikkei leading the charge (+3.4%) after Japan re-opened following the holiday break. Malaysia’s main equity index is up half a percent overnight after a strong +3.4% gain yesterday. The weekend election outcome in Malaysia, which saw the ruling Barisan Nasional coalition retain power, has been seen as a positive catalyst for markets.
The RBA cut rates 25bps to 2.75% overnight, which we expected but was only 50-50 expected by the market. In the accompanying statement the RBA appears to have retained an easing bias. The Bank wrote that it has previously noted that the inflation outlook would afford scope to ease further, should that be necessary to support demand. At today’s meeting ?the Board decided to use some of that scope.?, noting that recent inflation data had been, if anything, a little weaker than expected, whilst the unemployment rate had increased.
This has seen AUD finally break the triple bottom at 1.0220-25 with macros selling on the move to a low of 1.0178. However, it?s since settled back around the 1.02 level with some profit taking from fast money names along with gamma buying off the lows. We remain short AUD, but expect it to be a slow grind ahead of Thursday?s labour market report and Friday?s RBA Statement on Monetary Policy, both of which should shed some light on the prospect of further rate cuts ahead (Adam Boyton expects one further 25bp rate cut by the end of Q3). There is now 9bps of cuts priced for June with 42bps cumulatively priced by Jan (vs 32bps prev). Our next target on the downside is the yearly lows at 1.0115.
EUR continues to frustrate the bears, with last week?s talk of negative deposit rates from the ECB and a stronger NFP number failing to see any follow through on the downside. Overall, however we remain EUR bears, but have lightened our position given the disappointing price action and will look to sell a bounce to 1.3150. We really need a break and close below 1.3030 to reignite more momentum selling, with the 200 dma at 1.2980 the next target on the downside.
USDJPY rallied to a high of 99.44 early Asia on Japanese importer demand. However, lack of follow through on the topside with Japanese players back from Golden Week has disappointed some players and exporter and spec selling has taken us back lower.
Elsewhere, Quiet session overnight in USDAsia with cross flows continuing to dominate as KRW outperformed massively while INR continued to struggle with nat banks and oil on bid. In Korea exporter selling remain robust and agents seem content to slow the pace of move rather than fighting general trend. MYR continued to chop violently as RM happily start building MYR longs while short term market still waiting to let some more political noise pass by. Flowwise we saw some selling in USDINR from macros and RM as we drifted of days highs with lack of follow through USD buying. Positionwise we have reduced our INR longs to core and have cut KRW shorts too. We continue to hold long USDTHB and USDTWD and instated some short USDMYR yesterday after elections.
Today, in Europe, we have German factory orders & Swedish industrial orders. In the US, we get IBD/TIPP economic optimism index & JOLTS job openings.
Deutsche Bank