Markets Attempt Recomposure After Tough Week, RMB View

Risk trades reeled at the end of last week but early indications suggest a small bounce in sentiment. Last week, the yen was the best performer while the pound sterling lagged. Weekly CFTC data showed a renewed interest in euro shorts. See below regarding Ashraf's take on China's decision to widen its RMB band.

The S&P 500 closed down 1.25% to 1370 on Friday to cap the worst week of 2012. Early indications are for modest gains in risk trades to start the week, with AUD and NZD higher.

On the weekend, the ECB’s Asmussen told the WSJ that Spain is on track to regain investor confidence. The brave words mask what is surely concern behind the scenes as Spanish 10-year yields climbed 16 basis points on Friday to close at 5.98%. Asmussen added that the worst of the crisis appears to be over.

European officials are travelling to Washington this week to lobby the IMF and partner nations to contribute more funds. Success is not assured as many nations continue to call on Europe to do more to add to its firewall.

Spain’s deputy prime minister called on the ECB to resume bond purchases in comments on Friday.

Data is light to start the week with Japan releasing March nationwide department store sales at 0530 GMT. The figures are unlikely to make waves in the market.

Released earlier were New Zealand house sales from REINZ. March sales rose 1.9% m/m for the best monthly result since Nov. 2001.

On CHINA’s DECISION TO WIDEN its currency fluctuation band against the USD to 1.0%, Ashraf told ALArabiya (see here: http://youtu.be/C0JyNySbyIY ) is another signal that the Chinese yuan (RMB) will be heading lower or remain flat at best into the end of the year. Ashraf has shown one day before today's announcement how CNY (green line) was immobile during the 2008 financial crisis. Today, the currency seems to be entering a new phase of immobility, but this time, justified by weakening data (GDP, CPI and trade balance) . As the currency remains unchanged (or declines) and GDP growth consolidates to 7.5% level, this raises serious questions about Chinese overall commodity demand. Copper (China's hot commodity) is already 20% below last year's highs. If commodity traders no longer find solace from the Fed asset purchases, then the short-lived declines we saw recently in metals and energy may be here to stay... especially when combined that sluggish Chinese demand and a weaker CNY.

Commitments of Traders

EUR net short position increased to 101K from 79K

JPY shorts were relatively unchanged at 66K compared to 65K

Sterling shorts more than doubled to 19K from 9K

CHF shorts cut positions after the breach of the floor, to 10K from 15K

Commodity currencies remain in net long positions against the US dollar

AUD longs were scaled back to 39K from 49K

CAD longs were trimmed to 28K from 29K

NZD longs edged higher to 7K from 6K

The data is as of the close on Tuesday