NZD weighed down by downgrade of GDP by New Zealand Treasury

Asian Market Update: NZD weighed down by downgrade of GDP by New Zealand Treasury, decline in quarterly PPI

Economic Data

- (NZ) NEW ZEALAND Q2 PPI OUTPUT Q/Q: -0.5% V +0.9% PRIOR; PPI INPUT Q/Q: -1.0% V +1.0% PRIOR; Largest decline in 7 quarters for both measures

- (NZ) NEW ZEALAND Q3 TWO-YEAR INFLATION EXPECTATION: 2.23% V 2.36% PRIOR

- (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 112.5 v 108.5 prior

- (KR) SOUTH KOREA JUL PPI Y/Y: 0.2% (2nd straight rise; largest increase since Sept 2012) V 0.1% PRIOR

Index Snapshot (as of 02:30 GMT)

- Nikkei225 +0.9%, S&P/ASX +0.6%, Kospi +0.8%, Shanghai Composite +0.1%, Hang Seng +0.3%, Sept S&P500 +0.1% at 1,969

Commodities/Fixed Income/Currencies

- Dec gold +0.1% at $1,300, Oct crude oil +0.2% at $93.97/brl, Sept Copper flat $3.11/lb

- GLD: SPDR Gold Trust ETF daily holdings rise 2.1 tonnes to 797.7 tonnes (first rise since July 23rd)

- JGB: (JP) Japan's MoF sells ¥1.09T in 1.5% (1.5% prior) 20-year JGBs; Avg yield: 1.342% v 1.409% prior; bid-to-cover: 3.62x v 3.77x prior

- (CN) PBoC to drain CNY30B in 14-day repos (7th consecutive drain)

- USD/CNY: (CN) PBoC sets yuan mid point at 6.1548 v 6.1528 prior setting (weakest setting since Aug 7th)

Market Focal Points/Key Themes

- US markets staged impressive gains and sentiment has carried over to Asia as perception of continued de-escalation in Ukraine takes hold. On Monday, Russia was able to secure an agreement in Berlin talks pertaining to delivery of humanitarian aid, even as progress toward a ceasefire remains limited. Military standoff continued in the region, with reports of "dozens" of refugees from Luhansk killed as they were attempting to escape bombardment.

- Pres Obama spoke on situation in Iraq, reiterating US will continue to pursue long-term strategy to turn tide against ISIS and carry on limited missions providing humanitarian support on Mt Sinjar and protecting US advisors on the ground. Obama also clarified that "US does not serve as Iraqi Air Force", and that a new govt in Baghdad will have to strive to be inclusive and appeal to Shias, Sunnis and Kurds. Elsewhere in the Middle East, Hamas and Israeli negotiators have both agreed to a 24-hour extension of truce, even as earlier Arab press reports suggested the two sides secured a multi-week ceasefire.

- NZD fell as much as 50pips from session higs below $0.8430 after a steep decline in Q2 PPI as well as a downgrade of economic projections from the Treasury's pre-election fiscal update. NZ Treasury cut Fy14/15 GDP target from 4% to 3.8% and also lowered budget surplus projections for the current FY to to NZ$297M v NZ$372M prior. Inflation expectations were also lowered by a decimal in the current and next year to 1.7% and 2.4% respectively. Lastly, RBNZ Q3 inflation survey lowered 1-year inflation expectation from 2.08% to 1.96% and 1-year GDP target to 3.1% from 3.3%. Note that the next Fonterra auction is expected in early US hours on Tuesday.

- In Australia, RBA policy meeting minutes from earlier this month were largely a reflection of reiterated statement and overall assessment. RBA once again noted that GDP likely slowed to more modest pace in Q2 and inflation pressures would ease but remain consistent with targets. AUD got a slight lift on the minutes release as traders did not find any dovish hints on currency, with AUD/USD rising about 15pips above $0.9340. BHP will put out its FY14 results that will feature a spinoff of unwanted assets for as much as A$14B.

- In notable Chinese press reports, State Information Center think tank speculated that all China non-Tier-1 cities would remove home purchasing curbs by the year end. Separately, CCB clarified that mortgage policy has not changed in Shanghai, which ran counter to overseas reports that CCB would re-define "first home mortgages" in a bid to stimulate more housing demand.

Equities

US markets:

- SKH: To merge with Genesis HealthCare in a stock transaction; +48.1% afterhours

- ARO: Guides Q2 -$0.45 to -$0.42 (ex charges) v -$0.59e, R$396.2M v $403Me; +4.9% afterhours

- RAX: Blue Harbour takes 6.5% active stake - financial press; +3.2% afterhours

- URBN: Reports Q2 $0.49 v $0.49e, R$811M v $806Me; URBN: Exec: gross profit could continue to deleverage during Q3 - conf call; -0.6% afterhours

- JMEI: Reports Q2 $0.12 v $0.12e, R$154.4M v $152Me; -2.9% afterhours

Notable movers by sector:

- Consumer Discretionary: Midea Group 000333.CN +1.9% (H1 results); Sichuan Changhong Electric 600839.CN -1.1% (H1 results); Skymark Airlines 9204.JP +27.8% (AirAsia may acquire stake)

- Financials: China Shenhua Energy 1088.HK +1.3% (July production results); Guoyuan Securities 000728.CN -2.1% (H1 results)

- Materials: Arrium Ltd ARI.AU +8.3% (FY14 results); Toll Holdings TOL.AU +4.1% (FY14 results)

- Energy: Kansai Electric Power 9503.JP +2.6% (plans to raise power rates)

- Industrials: Mitsubishi Heavy 7011.JP +2.3% (to increase sales through M&A activity); Amcor Ltd AMC.AU +4.2% (FY14 results); Transpacific Industries Group TPI.AU -7.1% (FY14 results)