Dollar And Yen Mildly Higher As Risk Recedes On Earnings, China Data And French Election: April 23, 2012

Risk sentiments are weak as the week starts as Asian equities are weighed down by poor earning reports from Daewoo Engineering & Construction, Tokyo Steel Manufacturing and China Mobile. Also, while the HSBC China manufacturing PMI improved to 49.1 in April, it stayed in contraction region. The news that IMF chief Lagarde secured over $430b funding for its war chest was ignored by investors. Dollar and yen are both mildly higher as risk appetite recedes. Aussie is also additionally hit as PPI unexpectedly dropped in Q1.

IMF Lagarde said that more than $430b funding was secured for IMF, meeting her target of $400b. The final amount from BRICS will be announced at a G20 meeting in Mexico in June while Russia has already said it will commit $10b. In short, the additional funding nearly doubled IMF's current resources of $485b to above $1T. Few points to note is that firstly, US and Canada refused to make the additional contribution. Secondly, US and IMF called for further action from ECB including lowering interest rates, balancing austerity with growth, injecting capital into weak banks and sell euro bills for deeper fiscal integration.

However, ECB President Draghi noted bluntly that "none of the advice that the IMF is offering has been discussed" by monetary policy makers lately. German Finance Minister Schaeuble said "Europeans have met their commitments."

In the first round of France's presidential vote, current president Sarkozy came in second to Socialist Hollande. Hollande won 28.5% of vote while Sarkozy won 27.1%. A surprise in the market was that anti0immigrant Le Pen won 18.1% vote, a record for the party. The second round takes place on May 6. Hollande is having a slight upper hand and some analysts are cautious that certain policies that Hollande promotes would create friction with other major countries. A major concern is that Hollande has made himself clear that he will seek to renegotiate the fiscal pact agreed by EU leaders and shift the focus from austerity to growth.

Aussie is so far the weakest currency this week as weighed down by mild risk aversion and weak PPI data. PPI unexpectedly dropped -0.3% in Q1 versus expectation of 0.5% qoq rise. Year-over-year rate also slowed sharply from 2.9% to 1.4% versus consensus of 2.2%. The data confirmed that there is no upstream price pressures in the Australia economy. Tuesday's CPI data will be closely watched and is expected to show 0.7% qoq rise in Q1. Markets are widely expecting 25bps cut in next week's RBA meeting. Weak CPI data will add to speculation that RBA would either cut 50bps this month, or by another 25bps next month.

Looking ahead, eurozone PMIs will be the main focus today while Canadian whole sales will be released.