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Asia Market Update

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Aussie Trade Balance Registers Second Consecutive Deficit

Thu, Jul 2 2009, 12:24 GMT
by Trade The News Staff

TradeTheNews.com

Asian Market Update: Aussie Trade Balance Registers Second Consecutive Deficit; China Diffuses Rumored Dollar Reserve Alternative Discussion at G8

- Asian equity markets are treading water as the US holiday shortened trading week draws to a close, with volatility also muted ahead of the bumped up Thursday non-farm payrolls report. Nikkei225 opened slightly higher but fell back into negative territory, unable to retest the 2-week high levels above 10,000 amid renewed JPY strength. Taiwan and Hang Seng led the way with 1% gain, but Korea's Kospi and Sydney's S&P/ASX were around unchanged, with regional decliners led by the selloff in the energy space. Ahead of the June jobs report and the last session of the week in the US, front month S&Ps are at session lows down 0.2%, while benchmark yields remained just above 3.50%.

- Following a barrage of economic data in the last two sessions, a relatively thinner calendar was highlighted by trade figures from Australia. May trade balance registered a second consecutive deficit and its worst level since July of 2008 at -A$556M v -A$125M expected, with the prior month's deficit also downwardly revised to -A$282M from -A$91M. Subsequently, Australia's Trade Minister reflected on the figure's 5% export decline as disappointing, but did note that resource export volumes were holding up well. In 2nd tier regional releases, New Zealand June ANZ Commodity Price Index saw its worst level since February at 0.2% v 2.8% prior, and Japan's June Monetary Base came in at 6.4% after May's 7.9%. In notable weekly data generally receiving limited coverage, Japanese investors showed the highest buying interest for foreign bonds since at least a year, prompting speculation of renewed Japan-driven carry trade flow.

- In equity news, Chinese steel makers find themselves in the 11th hour talks with iron ore producer Rio Tinto regarding benchmark prices going forward with prior contracts expiring at the end of June. Earlier this session, unconfirmed reports suggested that Chinese firms were willing to accept iron ore prices slightly lower than those accepted by Japanese firms, and set prices on a 6 month basis rather than a traditional 1-year scope. However, an industry representative from Heibei Iron saw talks as ongoing, with Rio Tinto not budging from its 33% price cut offer accepted by Korean and Japanese names. On the Nikkei, Hitachi was up sharply after Japanese press speculated the company would increase production capacity for lithium-ion batteries for hybrid cars by more than 600% by next fall. Furthermore, Hitachi was supported following news of agreement with LG Electronics to settle their patent infringement lawsuits pertaining to plasma televisions, computers and auto navigation systems. In Australia, miners were firmer but energy names Woodside Petroleum and Santos traded lower amid oil prices sliding below $70 handle yet again. In financials, Westpac commented on slower loan growth weighed down by slumping demand and deleveraging.

- Currency markets were agitated by more rhetoric from China regarding continued role of the US dollar as global reserve currency. Earlier in the US session, an unconfirmed report suggested that Chinese officials requested for G8 to discuss the issue a new global reserve currency at its summit next week, prompting a broad-based greenback selloff that sent EUR/USD as high as 1.42. However, Vice Foreign Minister rejected the notion of a more forceful push to discuss USD alternative as reserve currency at the summit, helping the greenback recover much of its losses. Separately, China National Gold Corp President suggested that China should increase its gold holdings to 3% of total FX reserves within 5 years. Note that the current composition of $1.95T in reserves sees gold accounting for about 1.6%. Ahead of the ECB decision and Trichet conference overlapping with US NFP, EUR/USD traded down to 1.41 and GBP/USD briefly tested 1.6450. In commodity FX, the Aussie was broadly weaker after a multi-month low in balance of trade numbers, selling down to 0.8030's. Japanese Yen consolidated its gains made in early US hours, ranging at 96.40-96.70 against USD. The yen was also firmer against the Euro and Aussie, with EUR/JPY and AUD/JPY descending to 136.20 and 77.60 respectively.

- Crude oil prices are lower at the time of writing and trading just above $69/bbl. Crude prices are tracking the declines being seeing in the European major and commodities currencies against the dollar. During the US session, oil prices closed down by more than 0.50% and below $70/bbl. Crude was weighed down in NY trading by the mixed US Department of Energy weekly inventories figures. The data showed that crude inventories declined more than expected, while gasoline inventories rose more than expected (DOE CRUDE: -3.7M V -1.5ME; GASOLINE: +2.33M V +2ME). Spot Gold is lower by more than 0.10% and has moved below $940/oz. Gold prices reversed their earlier gains as China's Vice Foreign Minister played down speculation that his country will seek for the issue of a new global reserve currency to be discussed at the upcoming G8 summit. Overall, commodities have seen muted volatility in Asia, as markets await the release of the US nonfarms payrolls report, which is due later today.

Published on  Thu, Jul 2 2009, 12:27 GMT