Lacklustre start to the week

Asia is seeing a cautious tone to the start of the week with investors uncertain on how some of the key macro events of the week will play out.

Source: Bloomberg

Greece will be front and centre this week as the country looks to secure a deal with its creditors while avoiding harsh austerity. The government reinforced it won’t back down on its election promise to end austerity but this is likely to be a lot harder than they are leading on. European equities struggled on Friday with sentiment around Greece weighing yet again. The losses came despite bond yields actually falling; perhaps this had something to do with the fact the euro remains resilient. The carry trade just isn’t working at the moment when it comes to the euro and this has put speculators in a precarious position. Last week, Mario Draghi reinforced the ECB’s intention to conduct the QE program to its completion despite inflation expectations starting to improve along with signs that data is improving.  Concurrently, bund yields have also recovered and this has changed the game on traders to an extent. Some investors will now be seeing value in borrowing in Europe and investing in Europe particularly as the US is losing its appeal.

China property issues persist

China’s April property prices showed the economy continues to face some challenges in that sector with prices down 6.1%. However, there were also some positive signs suggesting stability could be on the way. Recent action including rate cuts, tax cuts and easing of various property regulations are expected to stem the bleeding in the sector at some stage. This would have an overall positive impact on the economy. Things are getting desperate in China and the government has called on banks to support state projects. Local government debt problems in China have been well documented and it seems there is no sound solution in sight. While equities in China are yet to reflect some of the risks from debt issues and other challenges, one gets the sense at some point it’ll catch up. The performance in Chinese equities today has been relatively mixed with the key event for emerging markets likely to be this week’s FOMC meeting minutes. Analysts expect the minutes from the April meeting to elaborate on a less hawkish stance. This could see the greenback remain on the back foot in the near term.

BHP and banks struggle

The ASX 200 has had a tough day with financials unwinding and consumer stocks following suit. However, most of the focus has been on BHP and its spin-off, South32, making its debut. Both stocks traded weaker with investors expressing concerns about the latter’s growth potential. Meanwhile, AUD/USD is still holding above $0.8000 with traders looking ahead to the tomorrow’s RBA minutes. The minutes will shed more light on whether the RBA intentionally ended the easing cycle bias. With the current momentum, traders will be looking for an excuse to push the pair a bit higher in the near term. This could extend should the Fed minutes show a much less hawkish tone.

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