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Asian stock market, economy and companies update (May 20, 2010)

Contributed by Trade The News

By Trade The News

- Despite the recovery in the US indices over the final hour of trading that led to futures rise over 0.5% in electronic session, Asian equity markets remain offered amid persistent investor skepticism. In the final hour of Tokyo trading, Nikkei225 and the Kospi are down over 1%, Sydney markets are down 0.9%, while Taiwan is off by 1.6%. Shanghai Composite is also in the red by 0.6% around 2,570, unable to preserve the opening hour rally above 2,600. With Philly Fed on tap for the Thursday session, US equity futures sold back down to unchanged levels below 1,110 after rising above 1,116.

SPEAKERS/PRESS
- New Zealand: After the call for fiscal consolidation by the New Zealand central bank in the prior session sank the Kiwi dollar, commentary in the annual budget statement promising to cut debt helped reverse some of that sentiment. The govt called for FY10/11 net debt at 19.5% rising to 23% by FY11/12, but did note it would raise sales tax to 15% from 12.5% while lowering the corporate tax rate to decline to 28% from 30% in 11/12. Additionally, policymakers raised their growth forecast for the year to 3.2% from 2.4%, noting that faster growth would reduce the need for more borrowing. Speaking after the budget release, Fin Min English said the budget is strong enough to counter rating agency negative outlook, even as Fitch maintained its negative view after the budget on AA-/+ rating.

- Japan: 3-quarter high rate of Japan GDP growth on both q/q and y/y basis was talked down by Fin Min Kan, who said that although the figures show the economy is recovering steadily, much of the improvement is attributable to external demand and fiscal stimulus. Moreover, Kan said downside risks to the economy, namely deflation and financial market volatility, remain, while calling for the BOJ to maintain a flexible policy in dealing with persistent deflation.

- Singapore: Also posting a revision to Q1 GDP data, Singapore saw an upward boost to multi-year high pace of growth. Speaking after the data, Singapore govt noted 2010 GDP would exceed 7-9% range unless European crisis deteriorates further and warned that price inflation in Asia poses a global risk.

- China: Vice Fin Min Zhu said next week's discussions with arriving Treasury Sec Geithner and Commerce Sec Locke would include the impact of the EU debt crisis, which could present a risk to the global economy. Zhu further said issues of currency will be mentioned, suggesting China may be open to modify Yuan as economic conditions improve. Separately, China Commerce Min reiterated yuan exchange rate would be kept stable, while China State Council researcher Wu Qing suggested Yuan exchange rate may be altered within the next 2-3 months - a step preferable to higher interest rates. An editorial by China Securities Journal citing local economists also had a conflicting view, suggesting the recent volatility has eased pressure for Yuan revaluation, also calling for Q2 GDP to slow to 10%, Q3 to 9% and Q4 to 8%.

Geopolitical: Japanese press reported the unpopular positioning of US Army base may be resolved through relocation by next week. In Korea, Seoul continued to consider a response to the alleged sinking of its naval ship by the North, potentially calling for preventing the North ships from entering its waters.

EQUITIES
- In individual names, TEPCO was reported to launch the country's first offshore wind power generation project with power output of 2,000kw. Resona shares also rose sharply after planning to repay public funds before retreating later in the day. Also in Tokyo, local press said Nippon Steel profit may be cut by ?17B on repair of its furnace operations. In Sydney, Healthscope said it has received a revised takeover offer of A$5.75/shr from private equity group. In Taiwan, Acer said it may raise prices of laptops shipped to Europe to reflect costs and the recent currency fluctuations.

CURRENCIES/FIXED INCOME/COMMODITIES
- In currencies, European majors consolidated the gains made in the course of the US session. After testing 1.2430, EUR/USD retreated to 1.2320, while GBP/USD traded from 1.4460 session high to 1.4320. Australian dollar was the biggest loser on the day as markets continue to reduce expectations of higher interest rates. AUD/USD fell from 0.85 to 0.8250, AUD/JPY plummeted from 78.00 to 75.00, while AUD/NZD took out 1.23 - all 8-month lows. USD/JPY fell nearly 100 pips below 90.90 as risk aversion returned to Asia, with JPY also erasing all of the declines against EUR and GBP made in the US session.

- In commodities, uncertainty over the impact of the new mining tax in Australia continued to haunt local markets, as Australia Trade Min Crean refuted rumors the administration may compromise on the new mining tax. Front-month crude sank on risk-off flows, trading back down to $70/brl. Spot gold also resumed its correction from the prior session, falling from $1,197 session high to $1,182 - a two-week low.

ECONOMIC DATA
- (JP) JAPAN Q1 PRELIM GDP Q/Q: 1.2% V 1.4%E; ANNUALIZED: 4.9% V 5.5%E (highest since Q2 of 2009 in both measures); NOMINAL GDP Q/Q: 1.2% V 1.3%E (10-yr high); GDP DEFLATOR Y/Y: -3.0% V -3.0%E (multi-yr low)
- (JP) JAPAN Q1 HOUSING LOANS Y/Y: 1.0% V 1.6% PRIOR (first decline in 3 months)
- (SI) SINGAPORE Q1 FINAL GDP Q/Q: 38.6% V 33.4%E; Y/Y: 15.5% V 13.7%E (multi-year high for both figures)
- (AU) AUSTRALIA MAY CONSUMER INFLATION EXPECTATION: 3.6% V 4.1% PRIOR
- (AU) AUSTRALIA APR RBA FOREIGN EXCHANGE TRANSACTION: A$350M V A$892M PRIOR