Global appetite for risk continues to push stocks and high yielding currencies higher

- New Zealand March retail sales suggest that recent tightening has not been overdone, and that Kiwi economic expansion remains intact: (NZ MARCH RETAIL SALES MOM: 1.3% V -0.2% expected; EX-INFLATION QOQ: 3.8% V 1.8% expected) Before the retail sales data was released, NZD bears pointed out that disappointing economic data for the months prior to the RBNZ's hike hinted that the bank may have gone too far with their rate hikes. Today's data shows that Kiwi consumers remain resilient despite the recent rate hikes, dismissing fears that the RBNZ went too far in hiking rates.

- Chinese consumer price inflation fails to strengthen expectation of more rate hikes: (CH APRIL CPI YOY: 3.0% V 3.1% expected, 3.3% prior) Chinese food prices remain elevated, and the consensus is that CPI is likely to hover around the 3.0% level over the following months (note that 2006 year-average rise in the CPI was 1.5%). The CPI data reinforces the case for a rate hike from the PBoC, but doesn't necessarily strengthen it. Chinese equity markets opened sharply lower, but rallied after the release of the CPI data.

- Japanese wholesale prices increase, but increased costs are not being passed on to consumers: (JP APRIL DOMESTIC CORPORATE GOODS PRICE MOM: 0.8% V 0.3% expected; YOY: 2.2% V 1.7% expected) Japanese wholesale prices rose on a month-on-month basis, suggesting that they have bottomed out largely due to a rebound in global commodity prices. However, the consumer goods price component of the CGPI data still remains near zero, showing that the upward pressure on wholesale prices is not being passed on much to consumers.

- Forex: The USD started the week on the defensive, with EUR/USD testing resistance at 1.3550. The USD benefited from short covering last week, but some analysts suggests that EUR/USD and GBP/USD can make another run at record highs now that all the shorts have been flushed out. The global appetite for risk continues to support the high yielding AUD and NZD. Technical analysts feel that the AUD/USD correction under $0.8200 over the past two weeks now looks like a shallow sell-off that has allowed speculative long positions to rebuild. The USD was firmer against the TWD and THB, but the KRW stayed strong against the USD on strength in the local stock market.

- Equities: Japan's Nikkei225 is higher by more than 1.0%, tracking Friday's gains on Wall Street. Leading gainers on the Nikkei are large banks (dividend hike expectations), metals (M&A speculation) and Eisai (patent award). Shares of Tokyo Electron are higher by about 5.0% (profit forecast), while Nissan is higher by more than 3.0% after being upgraded to buy at Nomura. The Kospi is trading near a fresh all-time high on gains in shares of Kookmin Bank (broker upgrade) and Woori (broker upgrade). The ASX200 is higher by more than 0.75% on gains in Rio Tinto and BHP, following speculation that Rio Tinto hired Morgan Stanley to help fend off a potential hostile takeover bid. Shares of Leighton Holding rose by more than 4.0% following its earnings report and forecast. Chinese equities are higher and above the 4,000 level as April CPI was in line with expectations. The Hang Seng is higher by more than 2.0% after China announced a plan to allow Chinese banks and funds to buy overseas shares.

- Japanese trade surplus widens to a record: (JP MARCH CURRENT ACCOUNT: ??3.32T V ??2.95T expected; ADJUSTED: ??2.42T V ??2.12T expected) The Japanese March current account surplus widened 36.9% y/y on strong demand for Japanese exports. Exports climbed 9.6% y/y, while imports fell 1.0% y/y. The data also highlighted that Japanese exporters are less vulnerable to a U.S. slowdown (data shows that China overtook the U.S. as Japan's largest trade partner in the year ended March 31 for the first time)

- Commodities: Crude oil is little changed on few catalysts. Over the weekend OPEC expressed concerns about tight U.S. refining capacity and low gasoline supplies, while Kuwait's Oil Minister said that OPEC will come under pressure to raise oil output due to high prices. Spot gold is higher by more than 0.20% and near the $674 level, tracking USD weakness. Shanghai copper is higher by close to 1% on bargain hunting after falling during its daily limit (4%) during the prior session.