Asian equity markets are in relative positive territory at the start of this week as optimism that a solution to the European crisis is around the corner. The Nikkei is trading 1.50% whilst the Hang Seng is broadly higher at 1.17%. EURUSD has been chopping around the 1.327 to 1.3888 levels generally having a hard time finding a direction. AUDUSD weakened marginally to 1.0284 to 1.0304 while USDJPY traded from 77.33 down to 76.94 before regaining most of its lost ground. We suspect that risk appetite will remain supported but contained, until specific details of the European solution emerge.

The weekend G20 finance ministers meeting and central bank governors ended without any market moving developments. The official statement said that the world economy faces heightened tension and significant downside risk. That's said the IMF, seems increasingly willing to play a larger part in solving the European debt crisis specifically in terms of addressing liquidity issues through additional lending. Comments from the meeting suggest that ministers are in talks to endorsing sections of an emerging strategy to avoid a Greek default and recapitalize banks. The IMF Managing Director Lagarde stated that a new proposal will be presented at the Nov. 3 G20 summit.

In Japan, Industrial production was weaker than expected coming in at 0.6% mom vs. 0.8% exp. and 0.4 yoy. Despite the broad evidence that Japan economic condition remains fragile the JPY remains in high demand. BoJ Governor Shirakawa stated that fear in the global economy is supporting JPY appreciation. USDJPY got a slight boast on Friday as a report (unnamed Japanese official) that Japan would enact new steps against a strong JPY as early as this week. The strategy of encouraging Japanese corporate investment abroad has been making the rounds.

Coming up today, US Empire Manufacturing, Industrial Production, Capacity utilization and Canadian TIC data are on the docket. However, the prospect of a major Eurozone policy response will dominate the markets focus and positioning.

width=313

width=313