G7 gives the green light to carry on with the carry trades

- Concerns over emerging market debt: The Ecuador president Correa won a referendum on creating an assembly to revise the country's constitution (as expected). Correa, a leftist and friend of Venezuelan President Chavez, has threatened to stop making debt payments in order to free up money for social spending. The clear win will bolster Correa's mandate and allow him to push ahead with initiatives such as ending the lease on a major U.S. military base, renegotiating oil deals and reworking the national debt. Ecuador bond spreads have tightened sharply in the past two weeks despite political volatility. In related news, Malaysia ratings Corp said it sees a lingering downgrade trend for the country's corporate bonds.

- Aussie business confidence survey paints a rosy picture of Aussie domestic demand: (AU NAB Q1 BUSINESS CONFIDENCE UP 6 POINTS TO 10 v 4 in Q4). In prior NAB surveys, Aussie mining companies' confidence dipped on concerns over the U.S. slowdown. Aussie miners are a bit nervous about whether commodity prices will stay high amid a possible U.S. slowdown. But optimism over the domestic situation outweighed concerns over the U.S. outlook, as the survey showed that smaller firms are the most optimistic (the bigger businesses would have a greater exposure to a U.S. slowdown, while smaller businesses benefit from strong domestic demand)

- Equities: Asian equities are gaining sharply across the board, tracking Friday's gains in U.S. equities. The Nikkei 225 is higher by more than 1.60% on gains in shares of autos and exporters on the JPY's weakness. Shares of real estate company Mitsubishi Estates also gained on an unconfirmed report that its operating profit for the current FY will exceed its prior estimate. South Korean shares rose to a new all-time high for the 9th consecutive session on foreign demand for equities. Gains on the Kospi were led by shares of LG Petrochemical (earnings report) and Woori. Shares of Samsung are currently in negative territory after JP Morgan and Merrill cut the company's 2007 earnings estimates. The ASX 200 is higher by more than 0.75% on gains in mining shares, with some suggesting a correction in the ASX is imminent. The Hang Seng index is higher by more than 0.70%. Chinese equities are higher for the 10th session out of the past 11 on gains in shares of China Yangtze and Sinopec.

- Forex: EUR/JPY hit a new all-time high above 162.15 after the G7 failed to address JPY weakness. Traders weren't surprised by the lack of mention of the JPY or the carry trade, and the JPY managed to recover some losses. The consensus is that the G7 has provided the green light to carry on with the carry trades. The CNY was the only currency that was singled out in the statement (G7 statement said it was "desirable" for the CNY to move to help close global trade imbalances). With key U.S. inflation data coming up this week, technical analysts say the USD/JPY needs to have a convincing break above 119.48/53 cluster resistance to confirm the rise from 115.13 has resumed. The AUD remains well supported by rate hike expectations and fundamentals (30-day interbank futures market pricing in a 66% probability the RBA will hike rates at next meeting by 25bps). The GBP failed to get much support from strong housing data, perhaps suggesting that the strong housing market has been well priced into the currency (UK April RightMove House Prices MoM: 3.6% v 1.5% prior; YoY: 15.0% v 12.2% prior, fastest MoM rate of increase in 5 yrs). The CHF gained after SNB chairman Roth said that the CHF could face a "correction". The Thai baht was weaker after the Bank of Thailand governor said the bank will cut rates further in order to stimulate the economy.

- Commodities: Spot Gold is higher for the 7th consecutive week and above the $690 level as the USD continues to weaken. Crude oil is slightly higher on few catalysts, trading just below $64. Goldman Sachs raised its brent crude oil price forecast on stronger fundamentals. Shanghai copper opened 2.5% higher on potential supply problems in Indonesia and Argentina and gains in LME. Tokyo platinum hit a new record above ??4800/gram.