IG MARKETS CHIEF STRATEGIST, CHRIS WESTON'S VIEWS:

Asian markets have opened the new week on a firmer footing after the solid US payrolls report. Still, with Japan offline today volumes have been pretty poor in the markets that are still open.

The ASX 200 hit a high of 5201, but volumes have been terrible, and while the bulls will take a 1% gain every day of the week, a stronger backbone would have given the move more credibility. Still, with the help of some short-covering, cyclicals and notably global cyclicals, have done nicely, although the bears will take solace from the afternoon sell-off. A stronger April retail sales print (0.4% month-on-month) would have been welcomed, although it has added even more compelling weight to a 25 basis-point cut tomorrow, especially given a number of the board members have strong ties to the retail space. It's worth pointing out though that the RBA spends more time and adds more weight from the constant conversations it has with the retail community than this print; so while the 0.4% drop in the headline number has got the attention of the market, it perhaps won't resinate as much with the RBA itself.

AUD/NZD

The AUD will be firmly in play this week, and trading around the variety of event risk is tough, although we feel traders will look to sell rallies in AUD/NZD and AUD/CAD if rates are kept on hold. Pullbacks in EUR/AUD could also become a buying opportunity given the risk that the RBA will provide a strong signal that a June cut is coming. The chance of negative deposit rates in Europe is low, and clearly the ECB will cut its refinancing rate again before it gets to the deposit rate. Mario Draghi is the master of communication and it's in his interest to push down the single currency as best he can to stoke inflation, so the threat of negative rates is his new weapon in curbing the currency's strength. Recent statistics show banks hold €109.6 billion in overnight deposits and €202.5 billion of fixed-deposits with the ECB, so clearly a move to negative deposits would be a EUR-negative event. We feel the banks would actually make customers wear the pain before pushing these funds outside of the EMU, thus in theory a cut to the deposit rate would be a hard task to sell to the more conservative members of the ECB.

As mentioned, Japan is offline today, although we feel this could be the week to see USD/JPY move through the illusive ¥100.00 mark. Japanese government bonds have seen less volatility off late and that is hugely JPY-negative, while recent Japanese data in the form of the April PMI and household spending have improved (the latter by the most in eight years). As we have said in previous notes, the key for the BoJ is to raise inflation expectations above the yield on offer in the bond market, as negative real rates would cause a sustained sell-off in JPY.

USD/JPY

Of course the other key factor in USD/JPY appreciation is whether the so called 'soft patch' in the US economy continues to keep the USD offered. The payrolls report was clearly positive, but significant revisions to March and February really got the market excited. Interestingly, if we put the revisions into context, the US economy is producing an average of 208,000 jobs a month (over a six month period), which is above influential Fed president Charles Evans' previous trigger of 200,000 to curb the pace of asset purchases. This in theory should have been very bullish for the USD; however, with core PCE (the Fed's preferred gauge of inflation) running at 1.2%, the chance of curbing the pace of bond-buying anytime soon seems low.

China seems to be ignoring the HSBC services PMI print, which at 51.1 is the slowest pace of expansion since August 2011. Perhaps the big volatility has been seen in USD/CNY though, and despite a low fix from the PBOC, a Reuters article detailing that Chinese companies that are 'over-hedged' could face increased scrutiny has caused an element of short-covering. The April trade balance, CPI and new yuan loans are released to market this week, so the China growth trade will firmly be in focus this week.

The big mover in Asia has naturally been anything to do with Malaysia today. With the elections out of the way and status quo maintained, relief has been seen not just equities, but USD/MYR has literally been in free-fall all day. The 2.3% gain in the MYR (Malaysian ringgit) is the biggest move since 1998 and has put USD/MYR at the lowest level since September 2011.

So, with Japan out of play today, our opening calls look to be in-line with the moves in S&P futures since the close of the European cash market. S&P 500 futures are down 0.2%, while Dow futures are lower by around 17 points and this seems fitting with the open. With new all-time highs in the CAC, DAX and S&P 500, it seems like equities have regained their lustre and the fact that so many are sceptical keeps us bullish on these markets, and from a technical perspective shorting is tough and unrewarding. On the docket today we get final services PMI, while Mario Draghi speaks in Rome. The fact that France has been given an extra two years to cut its deficit below 3% is interesting and should support both EUR and equities.