Asian Market Update: Bomb Blasts Rock Jakarta Hotels; China Shifting Ore Demand Focus to Brazil as Rio Tinto Stands by Detained Staff; AUD Falls on Geopolitical Factors, Poor Import/Export Price Data

- Asian equity markets are looking to cap a strong week of gains with a final session rally despite some late day geopolitical jitters coming out of Indonesia. Simultaneous bombs exploded in western-operated Jakarta hotels on Friday morning, killing at least 9 people. Subsequently, a roadside car bomb exploded alongside North Jakarta freeway, killing another 2 people.
Equities On Jakara composite traded lower following the blasts, marking the only regional index in the red. Nikkei225 entered the final hour up 0.6%, Kospi was up 0.3% and ASX was unchanged, underperforming on geopolitical fears and local economic as well as regional credit developments.

- Import and export price data from Australia highlighted an otherwise light economic calendar in Friday Asian session. Both Q2 import and export indices contracted at multi-year record levels of -6.4% v -6.0%e and -20.6% V -16.0%E respectively. Fitch remained critical of the region as well, downgrading Queensland local currency rating by 1 notch to AA+ from AAA just one day after it cut New Zealand sovereign rating outlook to Negative. Fitch noted a strong credit profile and ample resources of the state potentially hampered by the state budget and financial projections through 2012-2013 impacting its flexibility, as the region undergoes an ambitious stimulus plan.

- In notable Asia speakers, Japan's Finance Minister Yosano voiced consensus with the BOJ on the bottom for domestic economy, but also urged the central bank to maintain its credit program on concern of potential renewed volatility in the financial sector. Over in South Korea, central bank governor Lee cautioned against rising housing prices tempering economic recovery, promising an accommodative monetary policy to support the economy. In Malaysia, local press saw MIER urging additional stimulus funding of as much as MYR8B in the event of slower than expected regional recovery

- In equity news, NEC plummeted 11% after two separate reports saw the company planning a ¥150B-200B capital raise even though the company refuted those rumors. Hitachi Construction was moderately weaker after Japanese press said it may post a Q1 ¥5B operating loss. Nissan was one of the more notable gainers on the index after Nikkei said the company is looking to produce its own line of hybrid cars powered by proprietary technology. Outside the Nikkei, the China-Rio Tinto saga took a new turn when CISA officials were rumored to look outside the Aussie mining space toward Brazil's Vale, attempting to secure a more favorable benchmark price contract. In turn, Rio Tinto continued to stand behind its detained employees, noting that they acted with integrity and within the code of ethical behavior, but also downplaying deterioration of ties with China.

- In currencies, the greenback was firmer across the board, picking up the most ground against AUD following worse than expected economic data. AUD/USD fell nearly 100 pips below 0.80, NZD/USD traded down 70 pips to 0.6420s and USD/CAD was thin between 1.1160-1.12. In European majors, EUR/USD briefly broke below 1.41 before bouncing toward unchanged levels around 1.4150, GBP/USD retreated back below 1.64, and USD/CHF traded just around 1.0750. Japanese Yen was also trendless, bouncing between 93.50 and 94.00 vs USD.

- Crude oil prices are declining in Asia as the EUR has moved into negative territory against the dollar, following the reported bombings in Jakarta Indonesia. During the US session oil prices rose, tracking the performance of equities. For the week, oil prices are higher by more than 2.5% and on track for the first weekly gain in 5 weeks. Spot gold is little changed at the time of writing. The geopolitical events in Indonesia have so far not benefited gold prices as safe haven flows have favored the US dollar. In terms of physical demand for gold, the SPDR Gold Trust ETF noted that its holdings rose by 0.31 tons to 1,094 tons s of July 16. Overall, gold prices are nearing the first weekly gain in 3 weeks.