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Asian stock market, economy and companies update (May 24, 2010)

Contributed by Trade The News

By Trade The News

- Asian equity markets open the week with a volatile session, as marginally lower start in Tokyo and Seoul accelerated to the downside in the final hour before the China open helped reverse sentiment in favor of the bulls. Arrival of the US delegation as well as rising expectations for the policymakers to delay monetary/fiscal tightening measures and the state council to pull back property restraints has sparked the slumping Shanghai Composite to a 3% gain, as Shanghai Property index rose about 4.5%. With just about 2 hours left in Tokyo, Nikkei225 is around session highs above 9,760, still down 0.2% but well off session lows below 9,700. Sydney and Taiwan markets are up over 1%, led by materials and tech sectors respectively, while Korea's Kospi is down 0.1%, weighed down slightly by geopolitical concerns. Front-month S&Ps are down 0.5% at $1,079, well off $1,075 session low.

SPEAKERS/PRESS

- CHINA: Arriving in China for the Strategic and Economic Dialogue (SED) summit, Treasury Secretary Geithner urged China govt to undertake more measures to promote a more open and fair trade system and to revalue Yuan to reflect market forces. Geithner also said US will pursue policy to promote greater domestic saving. China President Hu's response noted it is natural for China and US to disagree on certain issues, also suggesting the signs of global financial crisis still remain, even as the administration takes measures to promote more spending. China's Vice Premier Wang added the summit talks will focus on securing sustainable global economic growth, with European crisis said to play a part in undermining market confidence. Outside the US/China talks, local press reported that large cities of Guangzhou and Chongqing have published rules on real estate markets seen as less stringent than expected, excluding property taxes and banning loans on third homes. Separately, Chinese economist Zhu Baoliang said Chi
a "will not wait too long" on implementing property taxes, and NDRC assistant director Huang Hanquan denied press speculation that no property taxes will be installed in 3 years. However government researcher Xu Lianzhong warned for the State Council to approach tightening measures carefully in light of the European debt crisis impacting the global economic environment.

- JAPAN: The political theater plaguing PM Hatoyama may have entered an endgame after the administration failed in its campaign promise to reduce US military presence in the country. Speaking on the island of Okinawa, Hatoyama offered a formal apology to the governor and the people of the island, promising to reduce the costs of hosting the American military. However, with much of the disapproval for the cabinet stemming from the controversial military base issue, opposition LDP party has called for a no confidence motion to be filed against the cabinet.

- KOREA: Brewing conflict between the North and South Korea, escalating since the South discovered evidence of the North's involvement in the sinking of its naval ship, may have entered a new stage. South Korean President Lee said he was suspending trade relations with the North, prohibited North ships from entering South waters, demanded a formal apology, and promised to take the case to the UN security council. In response, North Korea threatened a "physical strike" against the North, just as US Secretary of State Clinton looked toward Chinese authorities to cooperate with the US on the escalating situation in the peninsula.

EQUITIES

- In individual names, Elpida was up over 2% after Japanese press speculation the company may post FY10/11 op profit around ?150B - up from ?27B y/y and better than ?105B expected. Also in Japan, JFE Holdings was said to consider investing ?1T to expand its business in Asia over the next 3 years after spending about ?290B in the last FY. In Korea, Hyundai Heavy was listed as potential recipient of a BHP contract to produce 6 bulk shipping carriers. In Taiwan, Hon Hai Precision Industries was said to receive a 3.5M notebook computers per year order from Dell.

- In Sydney, mining industry leaders continued to fan the dissent in response to the proposed mining tax. Rio Tinto CEO Albanese urged London institutional investors to oppose the super-profits tax, also noting the tax proposal is creating a sovereign risk, is responsible for decline in AUD, and will ultimately damage Australia's investment reputation and shift resources away from Australia. Fortescue CEO Forrest offered similar comments, noting that miners are "getting hammered" while global financiers are "fleeing". Also in Sydney, Healthscope allowed due diligence to private equity consortium which last week raised its takeover offer to A$5.75/shr but still advised its shareholders not to take action.

CURRENCIES/FIXED INCOME/COMMODITIES

- In currencies, the Euro as well as commodities currencies were sold off from the start of the session before recovering some ground on China risk appetite. EUR/USD and AUD/USD - the biggest losers among the majors - tested the downside of 1.25 of and 0.82 respectively. GBP/USD was around unchanged, with Cable outperforming on press reports of heightened fiscal discipline to be put in place with next month's emergency budget. Also in commodity FX, USD/CAD remains supported above 1.0590 even as the prospects for a BOC tightening rise, while NZD/USD briefly fell below 0.67 before rising back to 0.6750. USD/JPY gapped up 30 pips at the open to 90.30, fell back below 89.80 on risk aversion in the first half of the session before tracking higher Shanghai with a rally back to 90.30. EUR/JPY and AUD/JPY likewise fell over 100 pips initially before paring Yen gains.

- Spot gold was a notable gainer on the session, rising over $10/oz to $1,188 after prices declined for much of last week below $1,170. Analysts have suggested the selling was spurred by margin calls prompting profit-taking in the long gold trades, while others pointed to renewed Euro selling benefiting the safe-haven gold position. July crude briefly fell below $70/brl before rising back above $70.50, with commodity appetite supported by strength in China markets.

ECONOMIC DATA
(AU) AUSTRALIA APR NEW MOTOR VEHICLE SALES M/M: 8.4% V -2.8% PRIOR; Y/Y: 28.7% V 19.6% PRIOR (first m/m increase in 4 months, multi-year high in both figures)