Asian Market Update: Asian Equities See-saw in the Wake of Mixed US Employment as China's Monthly Inflation Figures Show Further Contraction

- Asian equity bourses are exercising greater restraint than the unabated post-employment risk appetite in Friday's session that saw US indices concentrate on smaller than expected payrolls loss rather than biggest job creation being in government sector and unemployment rate approaching stress-tests' "baseline scenario." The Nikkei225 opened firmer, then fell into negative territory ahead of the midday break by about 0.7% before trading toward unchanged level going into the final hour of trading. In Sydney, S&P/ASX pared much of the early losses after leading regional indices to the downside to trade off by 0.2%, while Korea's Kospi retraced the selloff toward unchanged levels. In US index futures, front-month S&Ps traded off session lows but still pointed to lower open with 0.5% decline.

- The key economic event in the session came out of China, where April Y/Y CPI and PPI fell short of expectations, invalidating hopes raised by the slight improvement seen in March. Consumer Price Index came in at -1.5% v -1.4% expected, for the third consecutive month of contraction after six years of upward price trends. The Producer Price Index scenario was even more dour, registering a multi-year low and its sixth consecutive decline at -6.6% v consensus -6.3%.
Just ahead of the data, PBoC Deputy Governor Su Ning managed expectations forecasting additional downward pressure on consumer prices even as he cited stimulus measures taking effect in the broader economy. Furthermore, China's central banker pledged to continue using interest rates and reserve ratio for banks to promote growth of money supply and lending. These implied easing intentions in China appeared to offset the disappointing progress report for domestic price trends, with equity and currency markets seeing little evidence of reined in risk.

- In Australia, Treasurer Swan and Prime Minister Rudd layed out forecasts of higher and longer-lasting deficits as the government prepared to unveil its fiscal year budget on Tuesday. Citing deeper than expected economic contraction, Swan suggested that the mining boom experienced in recent years is unlikely to return, preventing the government from taking in comparable levels of tax revenues. The administration also attributed economic mismanagement and failure to build up deeper reserves to the former Howard administration while also defending its stimulus measures preventing unemployment reaching 10%. Meanwhile, Australia's NAB business confidence index continued to decline to -14 from prior -13, even as conditions figure improved to -10 from -17.

- In notable individual equity developments, Nikkei industrials Bridgestone and Teijin traded lower by 7% and 5.5% respectively after reporting wider than expected losses for Q1 and FY08/09. Toyota fell 5% in the aftermath of last week's disappointing Operating Loss, dividend cut, and S&P credit rating downgrade to AA. Japan's tech names Toshiba and Sanyo rallied however as the first reported a narrower than expected loss for last year and forecasted better performance in the current year, and the second announced that it has developed a cheaper version of its rechargeable batteries. Korea's Samsung Electronics echoed improving sentiment in Tokyo tech, forecasting 2009 DRAM 2009 shipments to rise 10% to 15% y/y. In industrials, Nikkei's Sumitomo Chemicals traded up 8% after forecasting a larger profit in the current year despite posting a wider than expected loss in prior year, and Samsung Heavy Industrials reported Q1 Net KRW101.8B v KRW157.7B expected. In most notable Aussie names, Rio Tinto Chairman Du Plessis announced that he would meet with UK and Australian shareholders over the next three weeks to determine the extent of interest in approving Chinalco deal.
Also, Qantas Air was reported to have reached an agreement with Queensland fleet maintenance, securing the jobs of 500 employees even as its shares fell 5%.

- In currencies, USD majors drifted in narrow ranges after broad-based dollar selling all through Friday and going into the weekend. EUR/USD was contained by 1.3670, GBP/USD bumped against the 1.5250 resistance, while USD/CHF losses were limited to 1.1020. In commodity FX, after initial descent from 0.77, AUD/USD found support around 0.7650 while NZD/USD outperformed all majors with a rally above 0.61 on slower decline in the housing sector. Japanese Yen, having failed to find sufficient selling to trade above 100 against USD, rose toward 98.20 before retracing gains above 98.50.

- Crude oil prices are lower in Asia, tracking the declines in equities. Additionally, some market players are questioning if the recent rally in oil prices is overdone, as prices have recently risen to 6-month highs. In terms of OPEC related news, Iran's OPEC Gov Khatibi was quoted as saying that the oil cartel might either cut or hold production steady at its May 28 meeting. On 4/21, Khatibi was quoted as saying that higher OECD stocks may merit another output cut. With respect to oil demand, an unconfirmed report disclosed that in April, China's crude imports rose by 13.6% y/y, after declining by 5.5% in March. Spot Gold is declining on the session, despite the weakness being seen in the dollar. Today's decline in gold prices comes as Japanese banks are trading sharply higher and as China reported its 3rd consecutive month of deflationary CPI figures.