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Asian stock market, economy and companies update (May 25, 2010)

Contributed by Trade The News

By Trade The News

- Asian equity markets are deep in the red across the board, tracking final hour US session weakness, geopolitical concerns on Korean peninsula, as well as more evidence of hardship in Spain's financial sector. With about 90 minutes to go in Tokyo trading, Nikkei225 is down 2.8%, falling to 5-month lows below 9,500. Elsewhere, Taiwan is off by 3.1%, ASX200 down 2.4%, Shanghai off by 1.2%, and the Kospi plummeting by 4.3% - with selling exacerbated by geopolitical saber-rattling tremors from the North. With little economic data on the docket to temper the avalanche of risk aversion and little attention given to better than expected US housing numbers overnight, front-month S&Ps point to further selling at the open, falling 1.6% below 1,054.

SPEAKERS/PRESS

- KOREA: Geopolitical developments in South Korea took center stage in the session, with both sides on the peninsula taking a tougher stance in the past 24 hours. Following yesterday's demands by S Korea PM Lee on the North to issue a formal apology and suspending trade, Yonhap press said the South has now labeled the North as a "main enemy." US, supporting the response by the South, has also stated it would hold joint naval "wargames" in conjunction with the South. In turn, North Korea's leader Kim ordered his military to assume "combat footing". Heightened geopolitical uncertainty following the report prompted heavy selling of both Korean equities and the Won, forcing Bank of Korea to intervene with a threat of offsetting measures. South Korea Finance Ministry also said it was closely monitoring the "herd behavior" in fx market, and both the govt and the BOK were said to hold joint talks on market turbulence later today.

- JAPAN: With Nikkei225 falling to over 5-month lows, Japan's Banking Minister Kamei called for the Finance Ministry to likewise address volatility in the equity and currency markets. Japan's Strategy Min Sengoku offered similar concerns, noting that the turmoil in the EU economy will not be resolved quickly, with ongoing risks over the medium and long-term timeframes and implications of spillover on Japan's and global economies.

- CHINA: Comments from an economist at China's top govt think tank CASS Liu Yuhui touched on PBoC becoming more cautious to raise interest rates because of high local govt debt as well as possibility of deteriorating loan quality among nation's banks. Note that in the past, Liu argued for higher interest rates to contain expanding levels of investment and demand for risky assets. ON a related note, China FX Regulator SAFE said the inflow of hot money were not particularly large and speculative inflows into the property sector relatively small, with the govt taking appropriate policy adjustments.

- EUROPE: After the Bank of Spain took receivership of CajaSur over the weekend, US session saw a report of four of the nation's banks with total assets totaling more than ?135B being forced to merged. Commenting on the move, analysts saw this development as yet another indication of rising pressure by the regulators on banks with high levels of toxic mortgage-related debt to merge with bigger banks in order to dilute their portfolios.

EQUITIES

- In individual names, Japanese press reported Mitsubishi would establish a JV in China for manufacturing materials for lithium ion batteries. In tech, press reports saw Sharp posting its first FCF above ?100B in 8 years in FY10/11, but also called for Panasonic and Canon to delay some of their LCD and SED TV offerings. In Sydney, The Australian reported BHP is evaluating a LNG project in Western Australian in conjunction with ExxonMobil worth as much as $15-20B.

CURRENCIES/FIXED INCOME/COMMODITIES

- Commodity currencies led the decliners among FX majors as sharp risk aversion continued to benefit USD and JPY. AUD and CAD were down nearly 100 pips against the greenback, with AUD/USD falling below 0.8180 and USD/CAD rising above 1.07. Kiwi dollar was an exception, initially trading unchanged after milk cooperative Fonterra raised its payout ratio in FY10/11 to NZ$6.90-7.10/kg from NZ$6.50-6.60. Subsequently, NZD fell to 0.6670, down about 40 pips against USD. In European majors, EUR and GBP were both under pressure as well falling about 80 pips to 1.2280 and 1.4340 respectively. Japanese Yen firmed up against USD but only marginally, with USD/JPY falling some 20 pips to 89.90.

- Commodity prices saw further pressure on crude and a safe-haven bid in gold taking shape late into the session. July crude contract was down nearly 2%, falling below $69/brl, while spot gold briefly tested $1,195, further recovering losses from the prior week.

ECONOMIC DATA
- (NZ) NEW ZEALAND Q2 RBNZ 2YR INFLATION EXPECTATION: 2.8% V 2.7% PRIOR (highest since Q3 of 2008)
- (KS) South Korea Q1 External Short-Term Debt: $154.6B v $150.0B prior