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Asia Market Update

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China Officials Temper Growth Estimates as Media Questions Banking Sector Health

Mon, Jun 29 2009, 12:39 GMT
by Trade The News Staff

TradeTheNews.com

Asian Market Update: China Officials Temper Growth Estimates as Media Questions Banking Sector Health; Japan Industrial Production Falls Short of Estimates but Still Matches High Growth Mark; Commodity FX Weaker on Fear of Decline in China Demand

- Asian equity markets have picked up from Friday, trading slightly firmer across the board on a mixed set of economic and corporate developments. Nikkei225 is off session highs but still up 0.4% with about 2 hours to go, while the Kospi and S&P/ASX are slightly higher by 0.2%. Ahead of the holiday-shortened open of the US trading week, front month S&Ps are off by 0.3% at 911.60 and benchmark yields are a touch higher to 3.54%.

- The session saw a fair amount of economic data across the Asian region, presenting somewhat surprising counter-trend findings. In Japan, the relatively healthier industrial sector slowed its recovery after two consecutive months of sharp improvement. Preliminary M/M Industrial Production fell short of estimated 7.0% at 5.9% - matching prior month's multi-month high rate of increase. On a Y/Y basis, production still fell -29.5%, also short of the -28.8% expected. Likewise, Japan's retail sales failed to beat estimates for the first time in 3 months, falling 2.8% y/y vs -2.6% expected and remaining flat on a monthly basis vs 0.7% prior increase. Notably, the disappointing retail and industrial data comes on the heels of a particularly low inflation figures late last week that showed a record deflationary pace. Over in Asia-Pacific, New Zealand economy showed some surprising resilience in the export sector which has received much attention from the negative exposure to NZD strength. Kiwi May trade balance came in at NZ$858M vs expected NZ$250M, and while imports underperformed estimates at 3.10B v 3.42Be, exports were better than the expected 3.70B at 3.96B. Subsequently, New Zealand building permits did take some luster out of the trade data surprise, coming in at 3.5% v 11.2% prior.

- Statements from Chinese officials continued to demand caution over perception of China leading the global economy out of recession. Speaking over the weekend, PBOC's Zhou said China's Q2 GDP growth is only likely to be "somewhat" stronger than the disappointing 6.1% rate seen in Q1. Q2 data is expected out in mid-July. Regarding currency-related speculation over the status of the Dollar, Zhou said its current policy is "very stable" and will not be suddenly changed, but also noted discussions with Brazil central bank governor about using their local currencies rather than the greenback in certain instances. China's NDRC had a somewhat downbeat forecast for domestic conditions from its economists, who suggested that 2009 8% target would be difficult to achieve and that some additional fiscal stimulus may be required to boost local consumption in order to offset the persisting poor external demand. On the media side, influential commentator Ambrose Evans-Pritchard saw Chinese banks as spinning out of control in trying to absorb the $1T barrage of new lending that is being siphoned out into "Shanghai's stock casino" or propping up bankrupt builders without doing much to help the local economy. The feature also makes light of recent comments from Fitch who saw lenders becoming dangerously overextended, with losses on stimulus at risk to be larger than expected.

- In equity news, some of the Nikkei names reacted strongly to share-specific developments seen late last week. Daiwa Securities was down 12% after announcing a ¥267B issue of shares, while Elpida was sharply higher on press speculation it would receive ¥200B in government and public/private bank funds. Takeda was also lower after receiving FDA response on diabetes treatment Alogliptin that saw the presented amount of existing Alogliptin clinical data as insufficient to meet statistical requirements for approval. Elsewhere, Japanese press reported that Sony would invest 10% in Sharp LCD unit Display Products, possibly increasing its stake to 34% in the future, and Mitsubishi Heavy is said to have received a ¥600B order from Luminant for development of two reactors. Sanyo Electronics was also firmer after the company announced plans to increase its investments in rechargeable batteries and solar cells ahead of schedule.

- In notable developments outside Japan, Rio Tinto said that despite the deal breakdown, Chinalco will take up its share of the company's $15.2B rights issue. Note Chinalco's 9.3% stake represents Rio Tinto's largest equity holding. Chinalco was also mentioned in relation to the Anglo-American / Xstrata saga about an investment preferred by AAL over Xstrata. Taiwan's Acer was mentioned positively by New York Times, profiling the company trend to become the world's 2nd biggest seller of personal computers, focusing on its popular low-cost notebook line. In Australia, Virgin Blue reported monthly metrics that saw domestic passengers rise 0.4% and international passengers rise 52.4% y/y.

- Crude oil prices are lower in Asia and trading below $69/bbl at the time of writing. Oil prices are declining as the US dollar is gaining against the European major and commodities currencies. In the US, the most recent Lundberg survey noted that the average price of gasoline remained unchanged from two weeks ago at about $2.66/gallon on June 26. Lundberg said that gasoline prices continued to be driven by crude prices and that there is not going to be a "demand surge" any time soon because of the poor economic conditions. In China, an article in Japan's Nikkei disclosed that China is planning to raise its oil reserve by 160% over 5 years to a total of 270M barrels. Today's Nikkei report comes amid numerous prior reports noting that China may seek to stockpile resources. Spot Gold is lower on the session, as it is being weighed down by the firmer dollar. In other metals related news, an article in China's Caijing magazine quoted the country's top think tank, the NDRC, as saying that the government has completed its metals stockpiling, which included buying 235K tons of copper, 590K tons of aluminum and 159K tons of zinc.

- In currencies, the dollar was firmer across the board with the most acute weakness being seen in China commodity demand sensitive AUD. Aussie Dollar fell toward 0.80 handle, also underperforming severely against EUR and GBP. In other commodity FX decline, USD/CAD rose above 1.1570 while NZD/USD pared the sharp gain registered following better than expected Kiwi trade data. The greenback was also firmer against the European majors, with EUR/USD falling to 1.40, GBP/USD testing 1.6450, and USD/CHF rising to 1.0880. Japanese Yen fell about 40 pips against USD with the pair rising to 95.60, but traded in narrow ranges against European majors.

Published on  Mon, Jun 29 2009, 12:51 GMT