Trading proved to be more than a bit subdued in Asian markets despite China allowing direct trade of the yuan with Japans Yen. In a move aimed at promoting trade between the two biggest economies in Asia, it will take out the need to use the USD as an intermediary. The initiative starting on June 1st follows on from December when the leaders of Japan and China agreed to mutually promote direct trading between the two currencies based on market principles.

Despite the positive news coming from China, there was a raft of data coming from its new foreign exchange partner – Japan. In figures released last night Year-on-year household spending rose 2.6% in April, slightly better than forecasts for a 2.4% gain, while retail sales increased 5.8% on the year, worse than expectations for a 6.3% gain. Japan’s unemployment rate increased to 4.6% in April, up from 4.5% in March, slightly worse than expected, as markets had an expectation that the rate would be unchanged, sending Japanese equities lower in early Tuesday trading.

Also hurting volumes of trading was news from Spain. Whilst Europe waits on Greek elections on June 17th the yield on the Spanish 10 year bond rocketed to 6.47%, the highest it has been this year. The Spanish government is set to arrange a 19 billion euro recapitalization package for one of its largest commercial lenders, Bankia. This sparked global demand for the USD in a risk-off session, as concerns continued that Spain may need to rely on sovereign debt to pop up the financial institution.

Gold has been finding favour as a safe haven – up 0.29%, trading at 1575.85 whilst the currency markets saw moderate movement with the USD down or up less than 0.10% against most major currencies.

The highlight of today, commanding most investor focus will be the release of German CPI figures. Spanish retail sales are released and not expected to be good potentially adding more pressure to the EUR when European markets open.

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