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Asian stock market, economy and companies update (June 07, 2010)

Contributed by Trade The News

By Trade The News

- Asian equity markets are deep in the red as perceptions of a US-recovery backstop counterbalancing the slowdown in China and fiscal crisis in Europe were undone by the disappointing Friday jobs report. Nikkei225 is leading the collapse with a 3.7% drop - falling as much as 4% going into midday break. Sydney and the Taiex are down about 3%, while Shanghai Composite and the Kospi are off by over 2%. With little economic data on tap from the US to cure the weekend hangover of low private sector job growth in last month's NFP, front-month S&Ps were weighed down from the start by as much as 1% to fall below Friday lows.

SPEAKERS/PRESS
- CHINA: Accelerated meltdown in equities early in the session was exacerbated by comments from the president of a Chinese lender Bank of China Li (often confused for the nation's central bank), suggesting inflation pressure has diminished and also downgrading his forecast for the PBoC. Li, previously said to have forecasted as many as 1-2 PBoC interest rate tightening, said the policy action would instead only come in further reserve requirement ratio hikes of 1-3 moves. Property sector related comments from Chinese press also signaled the govt policies have likely accomplished their objective. China Vanke - the nation's biggest property developer - reported to consider varying measures at different locations to address slumping demand, but has not yet decided on price adjustment. Feature further notes the director of sales in Beijing confirmed the company is struggling to sell property units in the capital since the govt began to take steps to curb sharp gains in real estate sector, and also follows last week's report that Vanke is considering price cuts after its property sales fell about 20% in May. Separately Hong Kong Financial Sec Tsang said he continued to monitor domestic property market, with the city potentially impacted by European fiscal uncertainty and weaker Euro.

- AUSTRALIA: Sydney Morning Herald front-page reflected on the damage to PM Rudd from the controversial mining tax, as Opposition leader Abbott was reported to be the preferred PM by a 53% to 47% margin. Rudd said he would continue talks with the mining companies on super-profits tax, but also affirming his support for the structure and the rate of the tax. Mining industry leaders meanwhile continued their assault on the tax reform. BHP CEO Kloppers called the mining tax the "greatest threat I've seen in 17 years" - more so than the "two Brazilian crises and the Asian crisis". Specifically, BHP chief faulted the administration with changing the rules of the game in the middle of exploration cycle - something that other countries where mining firms do business would not consider.

- G20: Saturday's communique revealed an about-face by global finance officials, calling for greater focus on fiscal consolidation rather than further fiscal stimulus amid the European sovereign storm. Fin Mins also tempered their push for uniform bank capital reforms, acknowleding need for differentiation. Separately, Japan Vice Fin Min Minezaki said the nation is unlikely to introduce banking tax supported by some of the G20 members, given "well-protected deposit insurance scheme."

- EUROPE: Another wave of EUR/USD selling as well as signs of fickle support for the Eurozone bailout by Germany resurfaced across several press reports, reopening the question of viability of the single currency. A survey of 25 economists by the London Telegraph showed that 50% of them believed the euro would not survive in its current form. Der Spiegel reported the German Constitutional Court is considering an interim order barring German participation in ?750B EU/IMF plan for Europe despite of its support in the upper and lower houses of legislature. Also, a poll by financial services broker Forsa saw over 60% of Germans state they do not believe the Euro is a stable currency and were concerned about inflation, just as German press warned European austerity threat is spreading inside German border with expected reduction of at least 10K public sector workers by 2014. Elsewhere, EU's Juncker tried to dispel fears of a Greece-like sovereign crisis in Hungary, stating he is neither worried about the nation's fiscal state nor the declining Euro.

EQUITIES
- In individual shares, Hitachi losses were exacerbated by the press report it may lose a ?1T contract for UK intercity train awarded in late December because of that nation's fiscal belt-tightening. In tech, CEO of Elpida forecasted record FY10/11 Op profit of ?160B, but also said company will not follow other chip names in raising this year's CAPEX target. Also in Tokyo tech, WSJ cited president of Fujitsu suggesting company may be interested in US-market acquisitions. In Sydney, Brambles lost a A$40M contract from US client ConAgra, but said the amount is below 1% of annual sales and will not have material impact on its FY results. In financials, NAB rejected UK press speculation it may put its Clydesdale and Yorkshire banks up for sale, while Westpac was reported to consider a US bond sale in the US as early as next week.

CURRENCIES/FIXED INCOME/COMMODITIES
- In currencies, the Euro and commodity-related FX remained under pressure on further sovereign-crisis and overall risk-off related flows. EUR/USD fell to fresh 4-year lows below 1.19 while EUR/JPY made 8-year lows around 118-handle. Likewise, AUD/USD and AUD/JPY were notably weak, falling triple-digits as low as 0.8095 and 73.70 respectively. In other USD majors, GBP/USD was supported by 1.44 handle, with upper end of the range contained to 1.4450. Ahead of this week's RBNZ party, NZD/USD fell from 0.67 toward 0.66 before recovering above 0.6650. Japanese Yen was weak across the board with USD/JPY falling below 91.00, as Yen-short trade on announcement of PM Kan was rolled back.

- In commodities, spot gold traded down to $1,215 despite the Euro weakness before bouncing back to 1,220 - a familiar buy-on-dip bounce seen in recent weeks. Front-month crude was also weaker on risk aversion, briefly testing the downside of $70/brl.

ECONOMIC DATA
- (AU) AUSTRALIA MAY AIG PERF OF CONSTRUCTION INDEX: 53.2 V 55.8 PRIOR
- (JP) Japan MAY Official Reserve Assets: $1.0T v $1.0T prior
- (AU) AUSTRALIA MAY ANZ JOB ADVERTISEMENTS M/M: 4.3% V -1.2% PRIOR (3-month high)