Quiet session overnight with a raft of holidays in Asia and Europe. The Nikkei is trading lower (-0.45%) on disappointing earnings from electronics major Sharp (-5.0%) which declined after reporting a worse-than-expected $5.1bn loss for the year ending 31-Mar. China’s Official Manufacturing PMI came out marginally softer at 50.6 for April (vs 50.7 exp, 50.9 in March) with the slowdown driven mostly by a slump in new export orders, which fell into contraction territory with a reading of 48.6 compared to 50.9 in March, also adding to the softer tone.
G10 FX has consolidated in tight ranges through the Asia session with the majority of local markets closed. EUR unable to break above 1.3180 but holds 1.3160 support as we approach the first of the major events this week in the form of FOMC. Orderbook still retains its topside skew with buyers under 1.3120/30 and stops back up through 1.3200/20, although overall we expect the EUR to remain quiet today.
Yesterday we saw good buyers of GBP (macro and RM) which triggered some short covering. We continue to think GBP will outperform the EUR and remain short EURGBP going into the ECB.
For the Fed, Peter Hooper doesn?t expect much out of the May FOMC statement. The Committee will most likely take a pass on making any significant changes in their guidance to the markets at their FOMC meeting this week. Given the softening of the activity and inflation data of late, any change to their description of recent economic developments is likely to take on a modestly more dovish tone. The picture has not softened enough to warrant any modification of their policy stance (either verbal guidance or pace of QE purchases) in an easier direction; but if a change does occur it is likely to be in that direction (pls let me know if you would like the full note).
Clearly US data prints not helping the Yen bears and we’re not expecting to see any fireworks from the Fed tonight, so patience will have to prevail. USDJPY remains sluggish with Japanese the noted sellers into the Tokyo fix pushing the pair down to 97.47 lows before offshore demand picked up. Client flows on the day better RHS with decent buying interest from real money names on the dip.
Elsewhere, USDINR spot closed with the rest of Asia today (only Indonesia open), just a note on y’days WHT ‘announcement’ to reduce tax on interest payments to FIIs for investment in govt debt & INR-corporate debt from up to 20% to 5%… Our strategists note the Finance Bill (in which the above was included) has been passed along with all the amendments so, seems like it’s done. Still no official paperwork/details though. NDFs saw significant flow y’day, bias LHS as you’d expect – as we noted this is enough to not be bearish INR in the immediate term, as we were. 1s marking ard 53.65/70 area vs 70/75 close in NY last night.
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