Asian Market Update: Aussie Q2 annual CPI falls to 10-yr lows; BOJ sows more uncertainty on extent of QE timing; BHP sees challenging 2009 amid demand contraction, NAB to raise A$2.2B in new capital

- Asian equity markets are trading firmer in latter half of the session after a timid start, tracking the final hour bounce seen in the US bourses for the second consecutive day. Nikkei225 opened the day lower but reached unchanged levels by midday break, and was last seen up 0.9% with about 90 minutes to go in the session. S&P/ASX is up marginally just under 0.5%, contained by cautious tone from BHP and equity raise from NAB, while Korea's Kospi is around unchanged levels despite better than expected earnings from LG Electronics. Ahead of the US session, front-month S&Ps are around unchanged at $952.60, and benchmark yields remained just around 3.50% after some dovish testimony in House committee by Fed Chairman Bernanke.

- Australia's Q2 CPI marked the prime event on the calendar, with particularly close attention paid to the data following worse than expected multi-year low PPI earlier this week. Both Q/Q and Y/Y figures came in line with estimates of 0.5% and 1.5% respectively, generating little market reaction even with the Y/Y figure at lowest level in 10 years. In 2nd tier Aussie data, July DEWR skilled vacancies fell 1.7%, highest level for the data since May of 2008.

- A heavy set of rhetoric from monetary and govt officials made up for light economic calendar. BOJ Deputy Governor Yamaguchi suggested that December may not mark the end of quantitative easing measures after BOJ extended JGB and CP buying by 3 months last week. Yamaguchi did note that keeping extraordinary policy steps longer than needed would distort market functions, but also underscored preventing deflation as a critical task of central bank policy amid ongoing need for sensitivity toward downside risks. Elsewhere, Australia's Treasurer Swan acknowledged relatively downbeat CPI data released earlier in the session, suggesting price pressure could remain subdued over the near term. Over in New Zealand, Prime Minister Key suggested the economy was likely coming out of recession as early as in the next quarter, but unemployment is expected to continue rising into next year. Chinese press speculated on exports falling about 20% in 2009 amid persisting slack in demand from economic slump overseas, while Taiwan media noted Chinese banks looking to set up representative office locations ahead of the expected signing of financial services pact with the mainland later in the year.
Separately, a Taiwan press report saw the island's unemployment rate potentially rising above 6% ahead of the June figure to be released later in the session.

- In equity news, a pair of Aussie companies offered plenty of reason for caution over both the local commodity and financial sector. BHP reported Q4 iron ore production down 10% to 27.1M tons and copper production down 21% y/y to 307.2K tons, but also noted "very challenging" conditions in 2009 with inventory restocking in China reaching its end.
Furthermore, BHP saw commodity prices driven by extent of idle capacity as underlying demand trends were unveiled at the end of China's inventory replenishing. In financials, NAB was halted after announcing a A$2.2B equity raise to shore up capital rather than prepare for major acquisitions. Australia's largest lender CBA was also notably pessimistic, forecasting difficult conditions over the next year. In other Aussie names, goldminer Newcrest said Q4 gold production rose 9% and Oz Minerals planned to orient its A$800M cash position toward smaller investment and organic growth rather than large investments. In the retail sector, Woolworths saw some underlying strength returning in the overall economy, posting FY09 sales of A$49.6B - just shy of the expected A$50.1Be.

- Outside the Kospi, LG Electronics reported a sound Q2 result amid the recent signs of recovery in the overall tech sector.
LG's net profit was KRW1.2T v KRW866Be, Global Rev KRW14.5T v KRW14.3Te, as the number of Q2 mobile phones sold rose 29.8M v 22.6M q/q. Over in Japan, Sumitomo Metal forecasted a "substantial" recovery in demand for nickel over the second half of the year, while Mitsui Chemical had its credit rating cut at Moody's by Baa2 from Baa1 due to uncertainty of demand for company's major products.

- In currencies, European and commodity majors were generally range-bound, with Sterling trading particularly softly ahead of the BOE minutes on tap early in the European session. EUR/USD bounced around 1.42 and GBP/USD approached intraday lows just under 1.64, while AUD/USD consolidated gains around 0.8150 and USD/CAD traded 20 pips on both sides of 1.1050. Japanese Yen retreated from its US session highs, with USD/JPY rising to 93.80 from intraday lows around 93.30.

- Crude oil prices are lower on the session, but off of their worst levels. Crude oil opened the Asian session sharply lower, after API disclosed that weekly US crude and gasoline inventories were higher than expected (API PETROLEUM INVENTORIES: CRUDE: +3.1M V -2ME; GASOLINE: +1.33M V +750KE). Later today, the US Department of Energy will release its inventories data for the prior week. In China, the government disclosed that the country's June crude oil imports declined by 2.4% m/m to 16.6M tons. However despite the decline in China's crude oil imports, iron ore, coal, refined copper and refined nickel imports all rose on a m/m basis. At the time of writing, spot gold is little changed and has remained below $950/oz for most of the session. In terms of physical demand, the SPDR Gold Trust ETF disclosed that its holdings declined by 2.1 tons as of July 21 to a total of 1,092 tons.