Stocks rally as markets get ready for the Fed meeting

- Kiwi wage inflation slows: (NZ Q1 LABOR COST ALL WAGES PRIVATE QOQ: 0.6% V 0.8% expected; PRIVATE SECTOR WAGES: 0.7% V 0.8% expected) Results from a recent Westpac survey showed that Kiwi employees believe the best may have passed in terms of earnings, and some of that dwindling optimism seems to be reflected in official data. In a sign that higher Kiwi rates may be having the desired impact, total paid hours fell 0.5% q/q (suggesting that we could see a slowdown in consumer spending). The NZD did not come under significant pressure after the report, reflecting the market consensus that the divergence between labor supply and demand will likely maintain pressure on Kiwi wage inflation.

- Forex: The USD came under renewed selling pressure at the start of the week, as markets get ready for the Fed on Wednesday. The key factor to watch: whether inflation remains the "predominant concern" of the Fed members, or if the weight has shifted more towards growth. Labor data shows that U.S. consumers are working and earning less, and these trends add to the risk of a softer retail sales number next Friday, a negative for the USD. The CAD regained some strength at the start of the week despite lower oil prices. Traders looking for more downside in USD/CAD continue to watch C$1.1030, with many suggesting that this is the next level to push through in order to extend CAD gains. The GBP/USD moved higher by 0.15% after a BDO Business Trends report suggested that UK inflation is likely to lead to more BoE rate hikes (the same report showed that manufacturers are struggling with the higher GBP). EUR/USD was higher by about 0.1%, with some technical analysts suggesting that it is too early to say for sure that the rise from 1.2865 has finished at 1.3681 (analysts cite channel support that has held firm). The KRW gained sharply on strength in the local stock market (USD/KRW lower by 0.40%).

- Equities: The Nikkei225 is higher by more than 1.5% on a "catch-up" rally, after the index was closed during most of the prior week. Gains in Japan are being led by exporters. Shares of Yahoo Japan rose more than 5.0% following reports that Yahoo and Microsoft may increase their respective ties. In the consumer space, shares of Fast Retailing rose by more than 4.0% after its April same store sales rose by 6.9% y/y, possibly confirming the recovery in Japan's domestic consumption. Despite a sharp rise in the Korean Won, the Kospi index is higher by more than 0.70% and holding near a new record high. Gains on the Kospi are being led by Samsung Heavy (contract award), KEPCO and exporters. The ASX 200 index opened at a new all-time high (above the 6,300 level) on gains in shares of miners, Rinker and Qantas. However, the index is currently well off from session highs, after shares of Macquarie Bank fell by more than 1.0% (following reports that it may revise its offer for Qantas Airways in order to salvage its buyout bid). The Hang Seng index is trading near a new all-time high (above 20,950) on gains in shares of Hong Kong based property shares. Shares in Hong Kong are gaining despite the Chinese central bank's Governor Zhou conveying that Chinese equities may be approaching a bubble-like state.

- Data shows Aussie capacity utilization increases: (AU April NAB Business Confidence: 13 v 10 prior; Conditions: 16 v 17 prior, 2nd consecutive drop for the "conditions" component) NAB said that the survey's key message is that business continues to report robust levels of non-farm activity, and that capacity utilization is going higher (with capacity utilization going higher the risks to further wages acceleration remains real)

- Commodities: Spot gold is in positive territory and above $691 as the weaker USD and strike at Newmont Mining's Yanacocha mine in Peru (the largest gold mine in Latin America) supported gains. Crude oil is lower on profit-taking and holding below $61.80. Crude oil is trading lower for the 6th consecutive session. Copper prices are currently higher in Asian trading, despite workers at Southern Copper Corp agreeing to end labor strikes in Peru.