Reports » Asia

By Trade The News

- Asian equity markets are sliding sharply to start the week, tracking more broad selling in the US on Friday. Uncertainty over the effectiveness of the EU bailout package that briefly revived buying sentiment early last week remains at the heart of the prevailing bearish sentiment, coupled with fear of austerity across Europe depressing consumer demand for emerging markets goods further igniting risk-aversion flows. Entering the final hour of Tokyo trading, Nikkei225, the Taiex, and ASX200 are all down 2-2.5%, while Shanghai Composite and the Kospi are down nearly 3%. Ahead of the Monday open, front-month S&Ps are also down about 1%, falling about 15 handles to 1,120 session lows.

SPEAKERS/PRESS
- EUROPE: Concerns over the political will to see the bailout of Greece through mixed with focus shifting on other troubled EU states served up a fresh dose of reminders that Europe's troubles may be far from over. According to a Bild survey, nearly 50% of Germans would prefer to return to the Deutsche Mark. German Chancellor Merkel on Friday reiterated that Europe is in a very serious situation, and a solution is not guaranteed. Regarding Greece, IMF's Strauss-Kahn stressed that wage cuts for Greek state employees are key to address country's weak competitive state. In Italy, PM Berlusconi called for citizens to accept the possibility of public spending cuts responsibly, while Public Administration Minister Brunetta said Italy will in fact cut public spending and pass measures to postpone retirements to address fiscal crisis concerns in Europe. In France, govt officials declined to comment on press speculation President Sarkozy considered pulling France out of the Eurozone. Lastly, Die Welt interview with Austria's Fin Min Proell said EU fin mins would convene to focus on whether Spain and Portugal may be next in line for a bailout.

- CHINA: Corporate profit worries in Europe reverberated in the Far East, as China Commerce Ministry acknowledged that the EU debt crisis may in fact slow global recovery, as export volume to US and Japan are already falling. Commerce Ministry also cited economic data suggesting the slow recovery in some Chinese markets is reflected by weak demand in major export markets. Elsewhere, deputy head of the macroeconomic research institute under the NDRC Chen Dongqi said China's 2010 GDP may have peaked in Q1 at 11.9% and would fall to about 10% in Q2 to Q4. A separate report from China Ministry of Commerce also pointed to risk of much higher trade surplus by June-July because of higher input price of exports. In the property market developments, Chinese press reported that China Vanke is cutting the average price of a Beijing apartment by CNY800/sqm (-3.2%) to CNY24.2K as the most recent wave of govt action depressed demand. Likewise, Shanghai Securities News reported that resale transactions in Beijing's property market may have declined about 82% in the first 2 weeks of May vs the first 2 weeks of April.

- JAPAN: IMF warned that Japan's sovereign debt may rise to 250% of GDP by 2015 from present 227.1% level - the latest sign that the contagion of the sovereign debt crisis in Europe could spread to Asia. Meanwhile, Japan's Trade Minister took a page from the supply side stimulus approach, proposing reduction of corporate taxes to stimulate the economy, pointing to the difference between Japan's tax rate of above 40% vs Europe's 30%. On the political front, the approval rating for Japan's PM Hatoyama continued to fall in May, declining to 21% from 25% in April.

EQUITIES
- In individual names, healthcare M&A marked the primary corporate event, with Japan's Astellas Pharma sweetening the pot to acquire OSI Pharmaceuticals to $57.50/shr in a $4B transaction. In Australia, Leighton Holdings reported 9-month Net A$400M v A$220M y/y on Rev A$13.3B v A$13.7B y/y, guiding FY Rev around A$18.5B v A$18.2B expected. Among retail names, Myer Holdings said Q3 sales would be flat y/y at A$671M and LFL sales at +0.3% y/y, warning that Q4 would be challenging. Shares in Myer fell over 3% despite the company guiding FY10 Rev of +1-2% (implies A$3.3-3.33B v A$3.2Be). In Korea, Posco remained under review at Moody's for a possible downgrade, while a separate report noted the company may not continue with its bid for Daewoo Shipbuilding. In electronics, Samsung forecasted FY10 Capex KRW18T v KRW8.5T y/y, as company Chairman was said to hold talks with Sony on further cooperation.

CURRENCIES/FIXED INCOME/COMMODITIES
- European and commodity majors were weighed down by risk aversion that also predictably benefited USD and JPY. EUR/USD fell to lowest level since April 2006 below $1.23 - a 1.2233 session low. GBP fell to 13-month low below 1.4470, extending that drop as low as 1.4250. JPY was also firm, as USD/JPY tested 1-week low below 91.80, EUR/JPY traded down to 112.45, and GBP/JPY fell over 300 pips from Friday close below 131.50. In commodity FX, AUD/USD fell over 100 pips below 0.8850 while NZD/USD tested the downside of 0.70 for the first time in over a month.

- In commodities, the divergence between energy and precious metals remained on display, with front-month crude briefly falling below $70/brl - a 2.2% drop - and Gold testing the upside of $1,240 with 0.5% gain. Australia's mining tax is still in focus after BHP suggested the move represents a crucial turning point for economy that may put its iron ore JV with Rio Tinto in jeopardy. Treasurer Minister Swan said he was surprised by recent company commentary from mining companies on new 40% tax rate, with administration still committed to the tax, while Resources Minister said there may be some wiggle room for negotiation.

ECONOMIC DATA
- (NZ) New Zealand APR Performance Services Index: 54.1 v 57.3 prior
- (UK) UK MAY RIGHTMOVE HOUSE PRICE INDEX M/M: 0.7% V 2.6% PRIOR; Y/Y: 4.3% V 6.0% PRIOR (4-month low)
- (JP) JAPAN MAR MACHINE ORDERS M/M: 5.4% V 6.3%E (3-month high); Y/Y: 1.2% V 0.2%E (first increase since Jun 2008; Govt raises machine orders assessment)
- (JP) JAPAN APR DOMESTIC CGPI M/M: 0.4% V 0.3%E (9-month high); Y/Y: -0.2% V -0.3%E (16-month high)
- (JP) Japan MAR Loans & Discounts Corp y/y: -3.2% v -3.3% prior
- (JP) Japan APR Tokyo Condominium Sales y/y: 22.6% v 54.2% prior