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Asian stock market, economy and companies update (June 02, 2010)

Contributed by Trade The News

By Trade The News

- Asian equity markets are in the red across the board for the second consecutive session, tracking late-day selling in the US. Entering the final hour of trade, Nikkei225 is at session lows down 1.5%, reversing the earlier rally on Yen weakness brought about by abrupt resignation of Japan Prime Minister Hatoyama just one day after he vowed to stay in office. Sydney's ASX is down nearly 1%, while the Taiex and Shanghai Composite are near a 1.5% slide as well amid deepening risk aversion. With another housing sector figure on tap for tomorrow's US session, front-month S&Ps are near unchanged at 1,068.

- Economic calendar was highlighted by release of Q1 GDP out of Australia. Q/Q print was in line with estimates at 0.5% but well off the prior quarter's pace of 0.9%. In GDP components, terms of trade remained firm at 4.2% v 3.2% prior, but national expenditure fell to 0.8% from 2.4% and capital formation contracted 0.2% from +0.7%, justifying RBA decision to stand pat seen over yesterday's session.

SPEAKERS/PRESS

- JAPAN: Prime Minister Hatoyama met with DPJ party officials, subsequently announcing his resignation along with further apologies for failed campaign promise to relocate US military base from Okinawa as well as the political funding controversy plaguing the DPJ party. DPJ number two party leader Sec Gen Ozawa also tendered his resignation, with the next DPJ leader expected to be chosen by the end of the week. Finance Minister Kan is viewed as a front-runner to become the 7th PM in Japan since the start of the new millennium. Following the Hatoyama resignation, Japanese press said the BOJ could be pressed to implement further easing to relieve the uncertainty in financial markets. Outside the political turmoil, Japanese press also reported that FY09/10 tax revenue may exceed December estimates above ?37T on improving corporate earnings conditions.

- AUSTRALIA: Speaking after the release of the GDP data, Treasurer Swan said the figures mark a tentative indication of a self-sustaining private sector recovery, also pointing to strength in trade and the robust prospects for exports going forward. Separately, Australia Treasury's Gruen said Europe poses largest risk to budget surplus forecasts.

- CHINA: Commerce Ministry's Zhong said China faces more complex trade outlook amid weak export demand and rising costs. Comments from PBOC officials warned 2010 CPI may rise as high as 3.7% (3.0% official target) and that the economy is showing signs of "light overheating". Meanwhile, China's funding costs continued to rise, with the latest 3-yr bond offering by the Finance Ministry selling at 2.33% v 2.30% expected.

EQUITIES
- Honda said it has resumed full operations of parts plant in China today. Also in Japan, Panasonic aimed to double its LCD panel output at West Japan facility by next Feb.

- In Sydney, Australian Financial Review reported that BHP is reviewing its drilling program in the Gulf of Mexico after the US govt cancelled further sale of exploration leases. Separately, CEO of gold producer Newcrest said the mining tax will decrease industry competitiveness and delay agreements for mining projects. Fortescue Metals also noted serious project funding problems. On a related note, Minerals Council of Australia released a KPMG study substantiating industry claims that the super-profits tax will result in more difficulty with project financing, and Australia Resources Minister said the deal with the industry can be met but still saw the 40% profit provision as non-negotiable.

CURRENCIES/FIXED INCOME/COMMODITIES

- In currencies, Japanese Yen traded sharply weaker on reports of resignation of PM Hatoyama, with USD/JPY rising over 70 pips above 91.70. Sterling was also a big session mover after Prudential pulled out of its AIG Asia transaction, as GBP/USD rose 80 pips above 1.4730. Combined Yen weakness and strong cable gains helped GBP/JPY to a two-week high above 135.00. Despite the late day risk aversion, EUR/USD clawed back above 1.22, while AUD/USD retested 0.83 after briefly falling below 0.8280.

- In commodities, front-month crude shrugged heightened geopolitical tensions in the Middle East with a 0.8% drop to $72/brl amid weakness in China manufacturing data seen overnight. Spot gold was bid above $1,125 in US hours, consolidating gains with a retreat to $1,123.

ECONOMIC DATA
- (JP) JAPAN MAY MONETARY BASE Y/Y: 3.7% V 2.9% PRIOR (4-month high)
- (AU) AUSTRALIA Q1 GDP Q/Q: 0.5% V 0.5%E; Y/Y: 2.7% V 2.4%E
- (NZ) New Zealand MAY ANZ Commodity Price: 2.5% v 5.4% prior