Yen demand returns in a rush as markets digest Abe's sales tax delay

Good morning,

- OECD's Gurria: Outlook for 3% growth for global economy in 2016.

- Crude Oil Prices Drop on Fading Hopes for OPEC Output Freeze.

- Japan's Prime Minister Shinzo Abe: Have decided to delay sales tax hike by 2.5 years.

- Asian equities update: Nikkei 225 17105.32 (-0.76%), CSI 300 3169.00 (-0.02%), Hang Seng 20780.12 (-0.15%).

- Australian Dollar Gains as GDP Growth Reduces RBA Rate Cut Bets.

- We've seen a big demand for JPY in the wake of the sales tax hike delay 1 June As I highlighted in my previous post yen demand now picking up in the wake of Abe's sales tax hike delay. USDJPY 110.05 in a hurry from 110.55 after triggering stops through 110.50 and 110.30. Demand/support at 110.00 the next hurdle with bids/support at 109.75 behind that. Rallies now should be limited to 110.50-80. Yen demand across the board helping to put downward pressure on core pairs. Nikkei still falling and now down -1.35%. Market perception appears to be that Abenomics is running out of ammo for further easing and/or a relief that the fragile economy will not be subject to further taxation at this time.

- Oil prices slipped in Asian trade on Monday on a strong dollar and signs that global crude supply is holding up even as volumes hit by unplanned outages rise to at least five-year highs. In a further indication of abundant supply, the number of rigs operated by U.S. drillers was steady last week for the first time this year. Brent futures LCOc1 were down 18 cents at $48.54 a barrel as of 0421 GMT, after ending the previous session 9 cents down. U.S. crude futures CLc1 fell 26 cents to $48.15 a barrel, having settled down 41 cents in the previous session. The dollar index .DXY was marginally lower in early trade on Monday after gaining for a third straight week last week. A stronger greenback makes dollar-priced commodities more expensive for holders of other currencies.

- Currency investors should consider selling USD/JPY* on further rallies this week, advises Morgan Stanley in its weekly FX pick to clients.

"Japan’s GPIF said there was no need to make any changes to the portfolio as the fund is achieving its target returns which should allow USDJPY to remain supported earlier this week. However, our STGRDI has crossed 2 on Friday suggesting equity markets may soon start loosening upward momentum. According to the‘People’s Daily’ China will not reverse its efforts to implement market-oriented reforms of the yuan and the currency will remain in a strong position as the country's long-term economic fundamentals are stable.

USD/CNY is now at risk breaking its January 6.5962 high. A break beyond this level could spark speculation China loosing currency reserves again not boding well for the global risk outlook and implicitly for USDJPY," MS says as a rationale behind this call.

- Public opinion has shifted towards the UK leaving the EU, two Guardian/ICM polls suggest as the referendum campaign picks up pace – with voters splitting 52-48 in favor of Brexit whether surveyed online or by phone. Previous polls have tended to show voters surveyed online to be more in favor of Britain leaving the EU. But in the latest ICM research, carried out for the Guardian, both methodologies yielded the same result – a majority in favor of leaving. “Our poll rather unhinges a few accepted orthodoxies,” said ICM’s director, Martin Boon. “It is only one poll, but in a rather unexpected reverse of polling assumptions so far, both our phone poll and our online poll are consistent on both vote intentions and on the EU referendum.”

- $AUDUSD is above its 200-day SMA. I jumped on a long and took a short EURAUD. If momentum doesn't hold, I will cut the latter more quickly.

- Major news for today: GBP Manufacturing PMI, USD ISM Manufacturing PMI, NZD GDT Price Index, AUD Retail Sales, AUD Trade Balance.