Asian equity markets start the week higher ahead of U.S. earnings releases and GDP data

- Traders reduce bets of a May rate hike in Australia after soft PPI data: (AU Q1 PPI QOQ: 0.0% V 0.6% expected; YOY: 2.8% V 3.5% prior) Before the release of the data, 30-day interbank futures priced in a 52% chance the RBA will raise rates by 25bps at its May meeting. But after the release markets reduced the probability to about 40%. The AUD/USD dropped about 10pips but managed to hold first support at 0.8351. A closer look at the data showed that the importer component fell sharply, suggesting that the rising AUD had a role in slowing price pressures. Traders didn't want to push the AUD any lower, as soft PPI does not necessarily mean lower CPI (historically there is a low correlation between Aussie PPI and CPI). Aussie firms are likely to remain confident that they can keep prices at current elevated levels given the strong labor and housing market.

- Forex: The GBP did not gain much traction against the USD after the Ernst & Young ITEM Club report. The report said that the UK economy is operating at "full tilt", but rates may peak after the widely expected May hike. The ITEM Club expects the U.K. economy to grow at 2.9% this year (vs. last year's growth of 2.8%). The CAD gained moderately against the USD despite lower oil prices. The consensus seems to be that the CAD still has some upside, especially against the USD. Note that Lehman said last week that the CAD wasn't at risk of succumbing to selling pressure against the USD. Looking ahead, focus now turns to growth data as last week's moderation of core CPI is easing the FOMC members' predominant concern. Some traders talked about the oversold USD that could have a moderate rebound at the start of the week. (They said investors should watch EUR/USD levels for confirmation that a USD rebound has begun, this confirmation would arise from a EUR/USD break below 1.3575) Sentiment toward the USD remains bearish with the market focusing on negative rather than positive developments.

- Equities: The Nikkei 225 opened higher by more than 0.75% and is currently higher by more than 0.90%. Gains on the Nikkei are being driven by shares of exporters and steel companies. Traders became more optimistic about upcoming Japanese earnings reports following Friday's earnings reports from U.S. companies Caterpillar and Honeywell. The Kospi is currently higher by more than 1.0%, trading at record levels on gains in shares of exporters. Leading gainers on the Kospi are Samsung Electronics and Posco Steel. The ASX 200 opened trading in positive territory, but gave up all of its gains and is currently trading in negative territory. Gains in Zinifex and other miners were counterbalanced by losses in shares of Lihir Gold (on a share secondary) and Aussie banks. Some traders attribute the weakness in the ASX 200 to profit taking ahead of tomorrow's CPI data. Chinese equities are sharply higher on gains in shares of Citic Securities. Shares on the Hang Seng are tracking Chinese shares higher, with gains being led by China Mobile and HSBC.

- Oil trades lower after Nigerian elections: Early results showed the Nigerian elections is a blow to democracy in the oil-rich country. Several press reports said that the ruling party candidate Umaru YarAdua looked set to win Nigeria's presidential poll on Monday. Several international observers have said that the election "failed the Nigerian people", calling for the election to be annulled and run again. A definitive result is expected on Monday. The European Union team will also deliver their verdict on the elections on Monday. (Note: Germany expressed concern Sunday over reported irregularities in Nigeria's presidential election)

- Chinese equities rally as rate hike fears ease: The official China Securities Journal said that a PBoC rate hike before a long public holiday in early May remained very unlikely.

- Commodities: Copper prices are higher by more than 1.0% in Shanghai, tracking Friday's gains in the LME contract. A sharp increase in China's March refined copper imports and sharp decline in March refined copper exports supported gains in copper prices. Copper markets were unaffected by reports that the strike at Freeport McMoran's Indonesian Grasberg mine has ended. Spot Gold is higher and above $696.50 on USD weakness.