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Asian stock market, economy and companies update (May 26, 2010)

Contributed by Trade The News

By Trade The News

- The short covering rally that helped US indices reverse steep early session losses - spurred by speculation of further action by EU policymakers and a strong US consumer confidence report - has also translated into strength in the Asian equity markets. With 90 minutes to go in Tokyo trading, Nikkei225 is up 1.1% while Taiwan and Korea's bourses are up about 0.5%. Sydney's S&P/ASX is leading the charge with a 1.8% jump, predominantly on a 3.5% rally in the materials sectors supported by bullish comments on industry prospects from Rio Tinto. Front-month S&Ps were bid higher from the start of the electronic trading by over 1% before a subsequent retreat to unchanged levels. In late session trading, S&P contract is up 0.4% above $1,077.

SPEAKERS/PRESS

- JAPAN: Bank of Japan meeting minutes from April 30th meeting foreshadowed the most recent announcement of a fixed-rate loan scheme to banks at the May 20th decision. Four weeks ago, all board members saw the need for new growth-boosting measures as Gov Shirakawa called for review on whether financial firms needed more funds. Several BOJ members also suggested the impact of Greek fiscal crisis requires closer examination, while some noted more attention is needed to fiscal risks at home. The majority of BOJ members put 1% inflation as the target for price stability, even as one argued for a band as wide as 0.5-2.0% and one called for a 0% target. Many board members saw upside and downside risks to the economy as balanced, even as several suggested there were signs of sustainable economic recovery. Recall last week the Bank of Japan decided to raise its assessment for economy for the first time since November. Outside the somewhat outdated BOJ minutes, Governor Shirakawa spoke in a joint meeting with Fed's Bernanke, calling for focus stability of financial environment to supersede that of price stability. Furthermore, BOJ chief noted that too much focus on short-term conditions could create asset and credit bubbles in the future, and also suggested that measurement of price movements in the economy is complicated by Japan's transition to service and information related activities. Fed's Bernanke's prepared remarks only touched on the importance of political independence for the Fed as well as some inclination toward greater transparency. During Q/A session, Bernanke saw US inflation expectations remaining very stable, reaffirming policy target of about 2%. Bernanke also said he did not want to provide USD swaps as a permanent service for financial markets.

- KOREA: South Korea's Vice Finance Minister spoke early in the session, pledging sufficient liquidity in the FX market to stabilize the Won. Yin also suggested that markets may have overreacted in the prior session to the perception of greater geopolitical uncertainty. Separately, Korean press said policymakers are considering reviving a currency swap facility with the US because of geopolitical uncertainly on the peninsula. China Vice Foreign Minister Zhang also chimed in with a call for both sides to de-escalate belligerent rhetoric and return to more peaceful relations on the peninsula.

EQUITIES
- In individual names, Japanese press said Toyota may boost its daily domestic production by 4% from initial estimates to 13K vehicles in June and up to 14K vehicles in July. A separate bearish report from the NY Times however suggested the US govt has raised the death toll estimate related to incidents of unintended acceleration to 89 from 50 prior. Also in Japanese press, Nippon Oil was said to target 2% increase y/y in June processing volume, and Mitsubishi Corp was reported to have its Venezuelan oil field stake, along with that of Inpex, insured by the govt.

- Chairman of Rio Tinto spoke extensively mid-session, with comments helping revive appetite in the basic materials space. Specifically, Rio Tinto still sees strong demand for iron ore from Asia, with China demand still expected to double over the next 15 years and India demand to continue rising. Rio Tinto exec also said he is not opposed to tax reform in principle, but blasted govt assertion of sufficient discussions with the mining industry ahead of the announcement and also accused the Treasury of misrepresenting current and anticipated tax payout rates. Separately, an Australian Treasury official had earlier rejected mining industry claims of no consultation on the super-profits tax, promising to provide early report on mining tax issues this week. Rio also reiterated that mining tax would erode Australia's competitiveness and represents Australia's biggest sovereign risk. On the topic of China relations, Rio Chairman said steps are being taken to restore constructive ties after the recent legal dispute, and also affirmed his support to the Pilbara joint venture with BHP.

CURRENCIES/FIXED INCOME/COMMODITIES
- In currencies, European as well as commodity majors traded higher initially in line with risk appetite flows before a late-day retreat. EUR/USD and GBP/USD rose as high as 1.2387 and 1.4448, while commodity FX saw AUD/USD and NZD/USD as high as 0.8305 and 0.6715. After 2010 lows for CAD, USD/CAD fell back from 1.0850 US session high to 1.0650 low. Japanese Yen was also weaker, as USD/JPY briefly tested 90.50 before declining to 90.00 session low.

- In commodities, front month crude opened up 2% on the day above $70, but retreated to $69.30 as bearish API data (CRUDE: +615K V +250KE) failed to support gains. Spot gold continued to shine, reclaiming territory lost in last week's selloff with a test of $1,205/oz.

ECONOMIC DATA
- (KS) South Korea MAY Consumer Confidence: 111 v 110 prior
- (JP) Japan APR Corp Service Price Index y/y: -1.1% v -1.2% prior
- (AU) Australia MAR Westpac Leading Index m/m: 0.9% v 0.5% prior
- (PH) Philippines MAR Trade Balance: -$362M v -$333M prior; Total Imports y/y: 38.9% v 27.6% prior
- (AU) Australia Q1 Construction Work Done: 1.9% v 4.0%e
- (TH) THAILAND APR CUSTOMS TRADE BALANCE: -$226M V $500M (first deficit since Nov 2008)