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Asia Market Update

China Fundamentals Disappoint Again as Retail Sales Growth Slows

Thu, Mar 12 2009, 12:41 GMT
by Trade The News Staff

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Asian Market Update: Better Than Expected Headline Figures on Japan GDP and Aussie Job Growth Conceal Deteriorating Conditions; RBNZ Cuts by Minimal 50bps, Signals Slowing to Pace of Easing; Bank of Korea Stays at 2.00%, Noting Credit Thaw; China Fundamentals Disappoint Again as Retail Sales Growth Slows; JPY Recovers to Two-Week Highs vs USD

- The broad-based equity rally sparked by encouragement from Citi Chief Pandit earlier this week hit the skids as more damaging fundamentals from Japan, Australia and China, along with evidence of dwindling central bank ammunition in South Korea and New Zealand, reignited risk aversion across Asian and US index futures markets. Front month S&Ps were down 0.7%, Nikkei and Kospi shed over 1.5% late in the day, while S&P/ASX clawed back to unchanged levels just ahead of close. Indices in Hong Kong, Shanghai, Taiwan, and Singapore were all weaker, as buyers - conditioned to be fearful of yet another bear market bounce - headed to the exits in droves.

- Economic data from Japan and Australia were somewhat deceptive, with the former releasing a 0.3% increase to latest GDP and the latter posting a better than expected job growth. Japan's Q4 Final GDP came in at -3.2% vs the preliminary -3.5% decline on q/q basis, however much of the revision increase was confirmed to be the result of increased inventory levels. Imports and exports revisions offset - both gaining by a tick - while consumption decline was in line with preliminary -0.4%. More importantly, the Final GDP number served up an ominous reminder that Japan's economy contracted by the largest margin since 1974. Looking ahead, Japan's Finance Min Yosano said Q1 GDP is also likely to be "severe."

- Australia's February employment data revealed job growth of 1.8K positions over the month of February vs estimates of -20K. However, the bulk of the new jobs leaned heavily in favor of part-time positions, while full-time work visibly suffered. Indeed, the figures were far more telling of employers cutting hours of existing workers rather than creating new positions. Moreover, unemployment rate rose to 5.2% from 4.8% - the highest level in four years. As we discussed in the Preview, a record low in ANZ job advertisements for February was a worthy reminder that Aussie employment situation remains challenging. Speaking after the data release, Australia's PM Rudd acknowledged the difficult economy but also noted that unemployment would have likely risen higher without the fiscal stimulus efforts.

- A pair of central banks surprised the markets looking for deeper monetary easing response, with RBNZ cutting by the minimal within projected target range 50bps to 3.00% and Bank of Korea remaining on hold at 2.00% vs the expected 25bp cut. After last week's RBA decision to stand pat and increasingly vocal opposition to more cuts from some ECB members, this serves as a notable reminder of central banks worldwide exhausting their ammunition to limited avail. In New Zealand, Governor Bollard ruled out zero rate policy, suggesting that the rapid easing of interest rates was bound to slow while targeting a trough between 2.00% and 2.50%. Despite the decelerating response, Bollard noted that the recovery is likely to be fragile with few positive signs thus far.
However, smaller easing was justified by better economic situation in New Zealand relative to the rest of the world and negative impact of lower rates on the nation's savers. In turn, Bank of Korea's Lee conceded continued economic deterioration with prolonged downside risk, but offered the hold in easing to forestall the accelerating inflation as evidenced by February CPI figures. Although forecasting continued slump in exports and domestic demand, he did note greater willingness among local banks to extend credit.

- Rounding out the heavy economic calendar of the session, more disappointing data from China saw February YTD retail sales at 15.2% v 17.0% expected and YTD industrial production at 3.8% v 6.0% expected. Previously, the figures were seen at 21.6% and 12.9% respectively, augmenting the damage on mainland indices. Shanghai Composite and Shenzhen were off by 1.3% and 2.2% respectively - a regional decline second only to the drops on the Nikkei and Topix.

- Weighing on the Tokyo indices by virtue of pressure on exporters, the rally in JPY took USD/JPY below 96.50 - lowest levels since Feb 24th. Likewise, EUR/JPY and GBP/JPY traded sharply to the downside for multi-session JPY highs. Risk aversion seen in equities also weighed in favor of the greenback against the European and commodity majors. EUR/USD fell to 1.28, GBP/USD broke below intra-session support of 1.3850, AUD/USD fell below 0.6450, while NZD/USD backtracked from post-RBNZ rally to fall below 0.51.

- Crude oil prices are higher by more than 1%, after declining during the NY session by 7%.
Yesterday's US Department of Energy inventories report showed that during the prior week crude inventories unexpectedly rose, while gasoline stockpiles dropped more than expected (DOE CRUDE: +750K V -500KE; GASOLINE: -2.99M V -1ME). In terms of OPEC commentary, Qatar's oil minister said during yesterday's European session that removing approximately 800K bpd in supply will be required to fulfill prior OPEC output cuts after noting a day earlier that OPEC needs 100% quota compliance before making more production cuts. Ahead of the upcoming March 15 OPEC meeting, a Platts survey showed that the cartel's production in Feb declined to 28.1M bpd v. 28.97M in Jan. Platts noted that the worsening economic output should in theory support the case for a new OPEC production cut, but the group has still not cut output to the targeted level, as the compliance rates among producers is below 100%. Spot Gold prices are higher, after gaining more than $14 during the NY session. In terms of gold demand, the SPDR Gold Trust ETF increased its holdings of bullion by 9.2 tons to a new record of 1,038 tons, after reducing its gold holdings by 0.3 tons on March 8.

Published on  Thu, Mar 12 2009, 12:44 GMT

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