Asian Market Update: World Bank Ups China GDP Forecasts but Cuts Exports View; Asian Equities Turn Lower Again, while USD Selloff Stalls

- Asian equity markets are sharply lower once again after a third consecutive losing session on Wall St. this week failed to produce a meaningful rebound. With about 90 min to go in Tokyo trading, Nikkei225 is around session lows down 1.8%, with the selling led by energy and materials sectors. In other regional indices, Hang Seng was down 2.1%, while S&P/ASX and the Kospi both fell about 0.7%. Ahead of the US open, front-month S&Ps are slightly higher, gaining about a point to trade just above $906.

- Economic calendar in Asia was once again light and is expected to remain so for the rest of the week. Westpac ACCI Q2 survey was the lone release on the session, showing a steady improvement. Industrial trends levels rose to 38.3 from prior 34.0 and business confidence bounced all the way to 47.6 from 35.3 in Q1. In addition, May merchandise imports declined 5% m/m to A$16.4B, while RBA FX Transactions sales came in at the largest sale level since Feb 2004 at A$1.43B v A$512M prior. Earlier in the session, RBA had implicitly critiqued the lending rate increase by the private banking sector leader CBA last week, noting that while the official cash rate influence on banks appears to have weakened, it remains the "main influence" on banking costs.

- In other notable macro developments, the World Bank came out with an upgrade on China's GDP projections, raising estimates to 7.2% from 6.5% for 2009 and to 7.7% for 2010. The growth is anticipated to be more internally driven however, as 2009 exports were expected to decline 10.1% vs the prior estimate of a 6% decrease. Moreover, in addition to the indictment of global demand story, World Bank further suppressed market optimism for its revision by noting that "it is too early to say a robust sustained recovery is on the way." Elsewhere in China, former PBOC Governor Dai Xianglong said there is room for China to increase its US Treasuries investment if the US dollar was stable.

- Some positive comments on the region were also seen from the banking sector, as a top-tier investment house forecasted that the Bank of Korea would raise its key rate by at least 25bps this year, sending Korean Won sharply higher following the announcement. The projections also prompted a response from South Korean Finance Ministry, who said that even though the economy was seen growing "much faster" in Q2 that the 0.7% forecasted, it was still not the appropriate time to speculate on interest rate hikes. Meanwhile, Korea's Financial Services Commission offered a positive review on urban housing, noting that Seoul apartment prices were showing clear signs of a recovery.

- Zooming in to equity-specific news, Rio Tinto led the decline in materials names, shedding 7% after receiving a substantial price target downgrade at a top-tier bank. Additionally, traders remained skeptical on the competitive implications of its tie-up with BHP, with bearish sentiment also magnified by geopolitical developments as Mongolia's president elect expressed an interest in revising the mining agreement with the company. In other regional commodity names, Alumina forecasted a 7% decline in demand for the current fiscal year. Also, China's Minmetals expected that demand for commodities in China would be flat over the coming 2 years, noting that the recent rise in commodity prices may be unsustainable. MacArthur Coal was halted on announcement of a A$190M in stock offering while also guiding FY09 NPAT A$155-170M v A$137Me.

- In currencies, USD majors traded predominantly rangebound after a late-session selloff in the US sank the greenback. In European majors, EUR/USD appears to be challenged by intraday resistance turned support around 1.3930, GBP/USD retraced the US session rally to 1.6340s, and USD/CHF bounced above 1.08 but was contained by intraday support of 1.0830. In commodity FX, AUD reversed initial rally to trade down toward 0.79, and USD/CAD found buying interest around 1.13 level. Japanese Yen volatility was particularly subdued with 95.60-96.00 range holding against USD and 133.20 intraday support preserved against EUR.

- At the time of writing, crude oil has moved off of its Asian session highs above $71.50/bbl as most Asian equities indices are declining and the US dollar has rebounded against the European major currencies. During the US session, oil prices rose by more than 0.50% as the Department of Energy disclosed that weekly crude inventories declined more than expected (DOE CRUDE: -3.87M V -1.8ME). Oil was also supported in NY trading by reports that an attack on Chevron's facilities in Nigeria, caused the company to cut its production in the country by 100K bpd (about 27% of Chevron's total 2008 production in Nigeria). Spot Gold has moved below $940/bbl in Asia after rising towards $944/oz earlier during the session. According to a report from yesterday by a British bank, the $944/oz corresponds with the neckline of a head and shoulders top. Additionally, an analyst at another firm noted that gold has been holding its 100-day moving average, which comes in at around $925-$926/oz.