Key Points
JPY weaker, high-yielders advance as US data comforts global markets.
Markets may remain wary with further key US releases due for this week.
Weak US data will be needed to prevent a pullback in EUR-USD ahead of weekend.
US pending home sales features today, RBA rate announcement tonight.

Market Outlook
The JPY has weakened overnight, reflecting the fact that certain high-yielders, e.g. the AUD and NZD, are all roaring ahead to fresh highs. Even cable has managed to advance to its highest level against the USD since mid-January. The passing of yesterday's US ISM number without a fresh disaster has been a contributory factor in this regard, while oil prices are also off recent highs. The ISM report was not exactly strong, but by staying above 50.0 it is painting a picture of activity that is clearly not weak enough to alarm global markets or to trigger any immediate Fed easing expectations. The strength in the prices paid component was a reminder of the inflationary backdrop, although in truth this number is volatile and reflects m/m swings in raw materials prices. The ISM does not have a category for 'prices received'.

However, markets are still likely to tread carefully this week with the non-manufacturing ISM and the employment report still to come. Any negative news from these items would still have the capacity to fuel fears about the US economy. Likewise with EUR-USD, where the market has already built up sizeable long positions. If such positioning is not supported by some further weakening in the US data (and yesterday was a chance missed in this regard) EUR-USD may fall back as positioning is unwound, especially ahead of the Easter weekend where many will be blind to Friday's payrolls release.

If the rest of the week's US data does turn out to be reasonably solid, this should be negative for the JPY and positive for global markets, high-yielders and the USD.

Day Ahead
US - pending home sales have been fairly soft in recent months apart from a brief upward spike in December, but at least the series has stabilised after the heavy falls seen between Q305 and Q306. Some strength will be needed to add credibility to the recent rise in existing home sales.

Australia - tonight's RBA decision has become an increasingly close call. Recent data suggests that the tightening conducted so far has not had a major impact on spending, debt appetite or activity in general and a rate rise this month or next now looks a certainty. Waiting until next month would give the RBA a chance to assess the Q1 CPI data released on April 24, but the strong retail sales data earlier this week may convince them to tighten immediately. They could certainly rationalise a tightening as early as this week. An additional, albeit secondary, consideration may be whether they want to add further fuel to the fire under the AUD after the recent break above 0.80. If they do raise rates tonight the AUD is likely to test and possibly break the 0.8214 high from Dec 1996. A failure to move would instigate a pullback towards 0.8100-25, although unchanged rates should not detract from AUD optimism too much. Expectations for a May rate hike would remain firmly in place and the risk of hedging demand for AUD is high with 0.80 having been broken.

Diary
Data/event BST Consensus*
 
EU PPI (Feb) y/y 10.00 2.8%
US Chain store sls (w/e Mar 31) w/w 12.45 0.2% last
US Redbook sls (w/e Mar 31) m/m 13.55 0.7% last
TR CPI (Mar) y/y 14.30 10.9%
US Pending home sales (Feb) m/m 15.00 -0.5%
US ABC consumer conf (w/e Apr 1) 22.00 -2 last
AU RBA rate announcement 00.30 mkt split unch/ 25bp
Latest data Actual Consensus*
JP Monetary base (Mar) y/y -19.1% -19.7%
AU Trade balance (Feb) -A$0.8bn -A$1.1bn
CH CPI (Mar) y/y 0.2% 0.2%