Risk Aversion Dominates Markets, Stocks And Gold Tumbled, Yen Rebounded

Risk aversion has dominated the markets this week, as growth concern over China growth triggered selloff in global equities. Further weight was added in the U.S. session on news of explosions at the site of Boston Marathon. DOW closed -265pts lower, or dropped -1.8% to 14599 while S&P 500 dropped 36.49 pts, or 2.3% to 1552.4. Free fall in gold continued as it reached as low as 1321.5 so far today, comparing to last week's close of 1476.1 and the near 1600 level in early April. Crude oil also dropped to as low as 86.06, comparing to last week's close of 90.66. In the currency markets, commodity currencies are under broad based pressure this week with NZD/JPY down -2.51%, AUD/JPY down -2.45%, CAD/JPY down -1.48% so far this week. European majors are relatively steady so far.

Technically, the selloff in yen crosses seemed to have halted earlier today. The USD/JPY was held slightly above our mentioned support level at 95.74, and recovered. The EUR/JPY was held above 123.86 support, and GBP/JPY was held above 145.91. The recovery in mid-Asian session suggested that the selling climax is temporarily over; we'd expect some more upside ahead. The yen is in near term consolidation and thus, any upside attempt would likely be limited by last week's highs. A key event to look out for is the G20 meeting later this week on any comments on yen weakness.

In reference to the yen, ECB president Draghi said that BoJ's massive stimulus program announced earlier this month is "determined by domestic policy considerations". He emphasized "there is no currency war." Nonetheless, it's reported that EU will talk about the lack of credible medium term fiscal consolidation plans in Japan and US. In a report issued last week, the U.S. Treasury urged Japan to "remain oriented towards meeting respective domestic objectives using domestic instruments, and to refrain from competitive devaluation and targeting its exchange rate for competitive purposes." Japanese officials have reiterated that the policies were aimed at getting Japan out of deflation rather than driving down the yen.

RBA minutes for meeting on April noted that "the outlook for inflation, as currently assessed, would provide scope for further easing should that be necessary to support demand." The central bank noted that "recent data suggested that interest-sensitive parts of the economy were responding to the historically low levels of rates and it remained likely that this had further to run". Meanwhile, "the factors weighing on the economy - including the high exchange rate, the waning growth of mining investment, and fiscal consolidation - were likely to persist." And it emphasized that the key issues were "what the balance of these factors would turn out to be."

Inflation data is a key focus on Tuesday: the Swiss PPI, U.K. PPI and CPI, Eurozone CPI and U.S. CPI are also scheduled. The eurozone will release German ZEW, while the U.S. will release new residential construction and industrial production.