Reports » Asia

Asian stock market, economy and companies update (June 08, 2010)

Contributed by Trade The News

By Trade The News

- Asian equity markets staged a reversal from early weakness at the open as short-covering in S&P futures and mixed commentary from Fed Chairman Bernanke reinforced expectations for slow and steady recovery in a low interest rate environment. Sydney index is leading the way with a 1.2% bounce with press commentary suggesting the controversial mining tax is becoming a serious political liability to Prime Minister Rudd. Korea's Kospi is also up 1%, while Nikkei225 and Shanghai Composite are up a modest 0.4% - the former bouncing from a near-1% drop at the open. After pronounced US market weakness in the final hour of trading on Monday, front-month S&Ps point to a higher open with a sizable 0.6% bounce.

SPEAKERS/PRESS
- US: Fed Chairman Bernanke comments were cautiously mixed, specifically pointing to tepid rate of recovery given the depth of the recession and the slow decline of the jobless rate. Fed chairman did suggest the recovery - while slow - appears to be sustainable and a double-dip recession is not likely. In terms of policy outlook, Bernanke said the Fed will not wait for unemployment levels to fall toward Fed target or for inflation to become out of control before normalizing rates, with outlook for inflation driving FOMC decisions. Bernanke also noted the banking system has not fully healed, expressing support for financial reform bill and defending prop trading activity in banks.

- AUSTRALIA: Local press continued to prod the administration over the proposed mining tax. Australian Financial Review said the measure would increase the cost of insuring debt for resource companies. The Australian cited South Australia speaker/Labor MP Lyn Breuer pushing for PM Rudd to hold more talks with mining leaders with risks of the tax impacting employment in her hometown of Whyalla. A separate report in The Australian also noted that Labor Party officials have urged PM Rudd to concentrate more on the right wing of the party said to be opposed to the mining tax. Rudd remained defensive, reiterating mining companies are likely exaggerating the impact of proposed super-profits tax, but Xstrata said its recent pullout from Australia projects was a clear business decision related to Australian mining tax. Outside the resources tax reform, RBA member Jillian Broadbent spoke, stating Australia's recovery is V-shaped but also expressing uncertainty over global economy. Broadbent also said Australia's terms of trade are expected to reach peak levels seen in 2008, with ongoing demand for iron ore and coal exports remaining firm, and population growth supporting housing and consumer sectors internally.

- CHINA: PBoC auction of 1-yr bills saw yields rise dramatically for the second consecutive week to 2.0929% v 2.0096% prior, as lenders preference for longer-dated debt on tighter property sector govt measures remains in the spotlight. Some analysts have also suggested the rising yields on the short-end of the curve are indicative of the central bank looking to address inflationary pressures. Elsewhere in China, sovereign wealth fund (CIC) chairman Jin said the economy is open for foreign investment. In materials space, executive of China's biggest steelmaker Baosteel said iron ore prices are likely to decline in Q4, with some of the smaller steel companies potentially facing default as early as Q3 on weaker demand from auto and appliance makers. The comments coincide with BHP and Rio Tinto notifying Japanese steelmakers that they will raise iron ore prices by about 23% in the Jul-Sept quarter.

EQUITIES
- In individual names, Honda faced a strike at a different parts plant in China, with workers said to be emboldened by company's concessions at other plants. Also among Nikkei names, Elpida was rumored to consider partnering with ProMOS Technologies in order to enter China markets. In financials, Shiseido cut its FY10/11 Net profit forecast to ?29B from ?31B and Op profit forecast to ?50.5B from ?53B.

- In Australian equities, Fosters' wine and brewing units were reportedly subjects of interest by China's Bright Food Group and Tsingtao respectively. Company's spokesman declined to comment on whether any talks would be held. Gold producer Newcrest Mining completed its due diligence for acquisition of Lihir, urging the company to stop speaking with 3rd parties. Earlier in the day, local press said Newcrest Mining may face competition from other interested parties. In financials, Macquarie was reported to be losing dozens of senior bankers looking to leave North America and European units because of reduced bonuses.

CURRENCIES/FIXED INCOME/COMMODITIES
- In currencies, short-covering in equities boosted risk-related European and commodity majors while punishing the Yan and the greenback. EUR/USD and GBP/USD rose about 60 pips to 1.1980 and 1.4520 respectively, while AUD/USD and NZD/USD were up 120 and 60 pips to 0.8210 and 0.6650. AUD/JPY - widely considered the barometer of the carry trade - was the biggest gainer, up 160 pips at 75.40 session high after finding buying interest at late-May lows around 73.70. USD/JPY was also higher - up nearly 60 pips above 91.80.

- In commodities, EUR strength translated into modest profit-taking in spot gold below $1,238/oz after a $20 gain in US hours. Crude was also higher in line with risk appetite flows, approaching $72 from sub-$70 levels at the start of Asian session.

ECONOMIC DATA
- (NZ) New Zealand Q1 Manufacturing Activity: 0.9% v 0.7% prior
- (UK) UK BRC MAY RETAIL SALES MONITOR SSS: +0.8% V -2.3% PRIOR; TOTAL SALES: +3.0% V -0.2% PRIOR
- (JP) JAPAN APR CURRENT ACCOUNT TOTAL: ?1.2T V ?1.3TE (3-month low); ADJUSTED: ?1.4T V ?1.4TE; TRADE BALANCE: ?859B V ?872BE
- (JP) Japan MAY Bank Lending y/y: -2.0% v -1.8% prior; Bank Lending Banks y/y: -2.1% v -1.8% prior; Bank Lending Banks Adjusted y/y: -1.9% v -1.7% prior
- (JP) JAPAN MAY JAPAN MONEY STOCK M2 Y/Y: 3.1% V 2.8%E (5-month high); M3 Y/Y: 2.3% V 2.1%E (6-month high)
- (AU) AUSTRALIA MAY NAB BUSINESS CONDITIONS: 6 V 8 PRIOR (5-month low); CONFIDENCE: 5 V 13 PRIOR (11-month low)
- (KS) SOUTH KOREA MAY PPI Y/Y: 4.6% V 3.2% PRIOR (16-month high)
- (JP) JAPAN MAY BANKRUPTCIES Y/Y: -15.1% V -13.2% PRIOR
- (JP) JAPAN MAY ECO WATCHERS SURVEY: CURRENT: 47.7 V 49.8 PRIOR; OUTLOOK: 48.7 V 49.9 PRIOR