China only needs US$1tn reserve?

Take it with a grain of salt. Many media reported that a PBoC advisor, XIA Bin, said China needs only "US$1tn reserves" and it will not rule out a one-time appreciation.

1y CNY NDF moved up sharply, along with AUD and other AsiaPacific currencies. We caution over-interpreting this particular report, which was delivered in a micro blog open forum for a book promotion, "China Financial Strategy 2020". Both the "US$1tn" number and the "one-time appreciation" blurb were answers to questions from one of many anonymous participants.

Strong currency fails to curb inflation.

A strong AUD has failed to contain import inflation, which bounced back to 1.4% QoQ after tanking 3.8% last quarter. Export price went up 5.2%. The market still prices in little RBA tightening, that it may be interpreted as an RBA being comfortable to let the currency do its job, but it begs to the question of what is behind the currency strength. One has to give, and an RBA move to tighten looks more plausible given the inflation pressure.

Focus: UK inflation expectations dutifully follow CPI down, by John Wraith

A distinct dovish skew to the minutes of the MPC's April meeting, published yesterday, led the market to pare back an already low probability of a rate hike after the Committee's next meeting on 5 May. While the minutes again repeatedly emphasized the upside, as well as the downside, risks to growth and inflation in the UK, there were several signs that some members are becoming increasingly concerned about the mounting evidence that the UK consumer may be showing signs of distress, which point to a more prolonged and serious slowdown in domestic demand than was anticipated.

Separately and specifically, the minutes stated that "the near-term prospects for consumption had weakened further over the month", "surveys of consumer confidence (remain) far below their historic average levels", "the continuing squeeze on households' real incomes was likely to dampen consumption materially over the next year or so if some consumers had not yet fully adjusted their spending", and that "the key (downside) risk was that private final demand would not pick up sufficiently strongly to offset the impact.of the fiscal consolidation, and that the resulting margin of spare capacity would cause inflation to fall materially below the target in the medium term".

As well as these mounting concerns, the minutes highlighted the "puzzling" refusal of import growth to moderate, meaning that while exports are demonstrably improving, the beneficial impact on net trade is not materializing because the import substitution towards (cheaper) domestic goods that would be expected as a consequence of a currency weakening as emphatic as that undergone by sterling between the middle of 2007 and 2008 is not apparent.