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IMF Raises Australia GDP Estimate But Urges RBA to Wait on Tightening

Thu, Jun 25 2009, 12:32 GMT
by Trade The News Staff

TradeTheNews.com

Asian Market Update: IMF Raises Australia GDP Estimate But Urges RBA to Wait on Tightening; Japan Automakers Pace of Output Decline Slows; Risk-oriented FX Boosted by Equity Strength, US Housing Sentiment

- Despite the equity rally petering out following the FOMC decision, Asian equity markets are well in the green with about 90 minutes to go in Tokyo trading. Nikkei225 is at the forefront of the rally, rising 2.6% on weak currency and some signs of improvement in the Auto sector. The Kospi and Hang Seng are also up about 2.5%, while Sydney's S&P/ASX is boosted by over 1% on commodity strength derived from the Fed downgrading the deflation scenario. Ahead of the US open, front-month S&Ps have just spiked up 1% to $907 after trading near unchanged levels. The rally comes on the heels of a late Asian-session release from Radar Logic April Composite Price Index showing a 1.2 m/m rise - the first increase since June 2007.

- The IMF came out with an upgrade on Australia's economic growth for the near term at the start of the session, raising 2009 GDP to -0.5% from -1.4% prior and 2010 GDP to +1.5% from +0.6%. However, the IMF also noted that growth was likely to be slow, expected continued deterioration in banks' asset quality, and warned RBA that it should be more cautious than normal in removing accommodating stance because of high economic uncertainty that recovery will not stall.
Moreover, IMF allowed for possibility of additional stimulus being required if conditions to deteriorate once again. Elsewhere in the region, New Zealand Q1 Current Account was worse than expected at -1.25B v -1.13B expected, with the prior also revised down to to -4.06B from -4.03B. This could potentially have implications on NZD GDP data expected to be released tomorrow.

- In addition to IMF assessment, Australia also saw a smattering of statements from its govt officials. Treasury Secretary Henry echoed IMF opinion, noting that current year's growth will be "somewhat stronger", even though business investment prospects remained weak resulting in unemployment remaining high. Finance Minister Tanner reiterated that downward bias on unemployment, while PM Rudd address the topic with a more positive tone, noting that the impact of govt stimulus will produce a yearly increase of 210K jobs in the economy. Japan's Finance Minister Yosano reiterated commitment to USD as key reserve currency, stating that strong dollar is in interest of US and countries across the world. Earlier, S&P made some comments about Japan's credit conditions, noting that credit quality has been worsening since Koizumi administration, but that it did not plan to act on rating immediately even if Japan's fiscal goals were revised lower.

- In equity news, May output reports from major Japan's automakers showing improvement helped spur positive investor sentiment. Among the sector's Big 3, Toyota's reported global output -39% y/y (442.6K units) v -50% prior and domestic output -42% y/y (192K) v -56% prior. Nissan saw global output -27% y/y (201K units) v -38% prior and domestic output -36% y/y (64K) v -50% prior. Honda reported global output -38% y/y (195K) v -30% prior and domestic production -43% y/y (52.6K) v -38% prior, one of the few automakers whose monthly decline did not improve on a yearly basis relative to last month. In financials, Aozora and Shinsei were up over 5% after Japanese press reported on a basic merger agreement reached between the banks expected to form a joint entity with combined assets of ¥19T. Among tech gainers, Fujitsu rose 5% on initiated Merrill Lynch coverage with a Buy rating. In other sector names, Sharp planned to appeal the decision of the Samsung patent case with the ITC after the US Trade Commission reversed a January ruling that Sharp infringed on Samsung LCD patents, and Panasonic confirmed speculation it would suspend its share repurchase program. In Taiwan, Acer Chairman forecasted weak demand for PCs over July-Aug months, while Australia's Westpac reflected on continued trend of slow credit growth and high funding costs and tight competitive environment.

- In currencies, the greenback largely consolidated its gains that followed the Fed decision to keep its QE levels at par and downgrade deflation prospects, with weakness also tracking higher risk appetite seen in equity markets. EUR/USD rose to 1.3970s, GBP/USD reached 1.6460's, and USD/CHF fell back to 1.0950 after SNB intervention took the greenback all the way to 1.1020. In commodity FX, AUD retested the upside of 0.80 and USD/CAD retreated to 1.1530 after failing to take out 1.16. Japanese Yen was sharply lower, with USD/JPY rising to 96.30's, EUR/JPY advancing to 134.50's, and GBP/JPY testing 158.50.

- At the time of writing, crude oil has moved off of its worst levels, tracking the gains in Asian equities. Also, crude prices may have gained support from comments from Chinese Communist Party researcher Li Lianzhong, who noted that China should use its foreign exchange reserves to buy more resources. During the US session, the Department of Energy's weekly inventories data showed that crude inventories declined more than expected, while gasoline inventories rose more than expected (DOE CRUDE: -3.87M V -1.2ME; GASOLINE: +3.87M V +1.3ME). The rise in gasoline inventories comes amid doubts as to whether the recent rise in oil prices has been driven by demand. Earlier today, industry group AAA said it expects US 4th of July auto traffic to decline by 2.6% y/y due to the weak economy. Furthermore, the June 14th Lundberg survey noted that the recent rise in gasoline prices was driven by the higher oil prices and not demand. Spot Gold is higher and has moved to fresh session highs following the comments from Chinese researcher Li Lianzhong, which were noted above. Additionally, gold is tracking the gains in the European major and commodities currencies against the dollar.

Published on  Thu, Jun 25 2009, 12:37 GMT