The PBoC unexpectedly lowered their main reserve requirement ratio by 100 basis points. The big move on the RRR fuelled concerns of China’s slowdown and hit Asian equities at the start of the week. On the FX markets, the antipodeans outperformed their G10 peers. AUD/USD advanced to a fresh 3-week high following the PBoC intervention. The positive momentum in AUD/USD strengthens on a sweet combination of dovish Fed expectations and waning EUR yields; the carry appetite will likely favour the extension towards 0.8000/0.8020 (technical resistance). Australian 1Q inflation read is due on April 22. Soft inflation read could potentially revive expectations of an additional RBA cut and accentuate the intermediate resistance at 100-dma (0.7917).
Greece in the headlines before Eurogroup meeting
The earlier losses in European equity futures have been reversed as Europe opened, yet the risk appetite is seen limited as talks on a potential Greek default will remain in the headlines before the April 24th Eurogroup meeting in Riga. With the drying liquidity on German sovereign debt and rising concerns on Greece, the EUR/USD’s last week rally is ready to start vanishing should the 1.0805/35 resistance holds tight. According to April 14th CFTC report, the speculative shorts in the EUR-complex did not improve in line with the EUR/USD recovery. The overall bias remains solidly negative.
The quarter’s busiest earnings week in the US
In the US, General Electric (NYSE:GE) and American Express (NYSE:AXP) published better-than-expected EPS on Friday, but concerns on stronger USD kept 2015 earnings forecasts moderate. With concerns of a slower global growth and the deterioration in the US macroeconomic data , the current pricing for a delay in the first Fed rate hike is being side-tracked by decent speculation. The implied probabilities now price in a December start in Fed tightening. In our view, the mixed US earnings liquefy concerns that the US data may lead to a further dovish shift. For the time being, we do not shift our expectation any further than September.
The big US names will stay at focus as we are heading into the busiest week of earnings: DuPont (NYSE:DD) (Tue), Facebook (NASDAQ:FB), Coca-Cola, AT&T (NYSE:T), Boeing (NYSE:BA), McDonald`s (NYSE:MCD), Novartis AG (NYSE:NVS), Google (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Procter & Gamble (NYSE:PG), Amazon (NASDAQ:AMZN), Caterpillar (NYSE:CAT), Ericsson (NASDAQ:ERIC)(Thu), Volvo (LONDON:0HTP) , Biogen (NASDAQ:BIIB) (Fri).
Turkey: Growing risks in CBT’s status quo
Turkish central bank gives policy verdict on April 22nd and is expected to maintain all three rates unchanged. Well aware of the political pressures on Turkish rates, we remain side-lined before the general elections in June. The dovish shift in Fed and the waning Eurozone yields clearly buy time for the CBT, we however believe that the CBT rates are currently sitting on a shaky ground. Given the heavy depreciation in the lira, there is increasing necessity for a tighter adjustment, starting from the upper band of the overnight corridor. The inversion in the sovereign curve highlights the growing risks regarding the Turkish policy rate. Longer the CBT maintains the status quo, stronger will be the need for higher rates. Therefore the risk of an amplified CBT action increases in time. The USD/TRY should see support at 1.6475 (March resistance to turn support) before the MPC meeting. On the upside, the all-time high of 1.7310 is nothing but a light resistance.
The major macro events are Japan’s March trade balance, Australian 1Q CPI, BoE meeting minutes (Wed), UK March retail sales (Thu) and US March durable goods (Fri).