Asian Market Update: RBA Stevens' upbeat comments sparks AUD rally to 10-month highs, while NZD lags on June trade deficit; Taiwan's Taiex at 11-month high on China contact, but Nikkei retreats

- Asian equity market trading is notably more mixed after the tech-led rally on Monday and late last week with investors growing more cautious over the extent of the run-up. With about 90 minutes to go in the session S&P/ASX is higher by 0.6% - helped by the upbeat statements of the RBA governor Stevens - but the Nikkei is down about 0.3% amid profit-taking selloff in the tech sector. Kospi remained unchanged following some cautious comments from Korea's finance ministry, while Taiwan's Taiex led the regional majors with a 1.5% rally in a break-out above 7,100 on reports of ongoing investment cooperation with Chinese officials - best levels for the index since August of 2008. Ahead of the Tuesday session, front-month S&Ps are slightly lower around $978, and benchmark US treasury yields reversed initial slide below 3.70% to bounce above 3.73% late in the day.

- New Zealand trade balance data has defied Kiwi strength in recent months but has finally succumbed to currency pressure on the economy's export sector. June figure of -NZ$417M marked the first deficit since January 2009 and worst level since November of 2008. Exports came in at NZ$3.20B v NZ$3.40Be - the lowest level since January - and imports were seen at NZ$3.62B. New Zealand trade ministry did note that imports included a NZ$571M aircraft order which weighed down the terms of trade into a deficit. In other regional economic data, NAB Business Confidence for Q2 was seen at -4, up from -24 in Q1 and at its best level since Q4 of 2007.

- Among regional speakers, testimony from RBA Governor Stevens was critical not only in its upbeat tone but also as a trigger for AUD to break out of a two-month-long trading range against the greenback. Stevens said the downturn in the economy may not be as serious as has been expected, and that Australian unemployment rate was rising slower than formally projected. Furthermore, Stevens said that it was not a rule that interest rates cannot rise while the jobless rate is on the upswing, effectively erasing any possibility of another RBA cut and potentially hastening an RBA tightening action.
Ahead of the decision, short-term yields implied the possibility of a 25bp hike by year-end, however that outlook is now likely to be magnified going forward. Stevens did suggest that further falls in inflation were possible, but housing activity has improved and risks to the economy had shifted to the upside.

- In other notable speakers, PBOC officials said Q2 domestic recovery was in fact faster than expected but urged the govt to maintain a stable accommodative policy with the economy having reached a delicate balance between stabilization and uncertainty. With regards to inflation, PBOC said the declining trend may continue, but the bottom was likely to be reached in Q3 as expectations had in fact improved on liquidity conditions. Recall in June, inflation levels as measured by CPI and PPI had both come in at multi-year low levels. Over in Korea, the Finance Ministry scaled back some of the optimism after a 5-year high GDP growth for Q2 reported last week, stating that Q3 GDP figure may in fact be weaker and considerable uncertainty over sustainability of recovery did remain.

- In Tokyo equities, Japanese automakers released their June production updates that showed slower rate of decline on y/y basis across the board. Among the Tokyo auto's big 3, Toyota reported global output at 565.5K units, -24% y/y v -39% prior, Nissan saw global output of 240.8K units, -22% y/y v -27% prior, and Honda posted output of 257.8K units, -20% y/y v -38% prior. Mitsubishi Motors, reporting comparable relative improvement, also said it would implement extra hours as of August at 3 of its plants. Outside the auto sector, NEC Electronics said the signing of its contract with Renesas was being delayed by one month to the end of August, while NEC Corp was said to search for a ¥200B reduction to its parts and raw materials expenses.

- In equities outside the Nikkei, SK Telecom reported Q1 slightly above estimates - Q1 Net profit KRW312B v KRW330Be, Op profit KRW553B v KRW525Be, Rev KRW3.07T v KRW3.01Te. In the Kospi industrials, Hyundai Mobis and Samsung Q2 results were also robust. Hyundai Mobis saw Q2 Net KRW724Bv KRW298Be, Op profit KRW364B v KRW343Be, Rev KRW2.53T v KRW2.43Te, and Samsung Heavy posted Q2 Net KRW151B v KRW172.6Be, Op profit KRW229B v KRW217.4Be, Rev KRW3.2T v KRW3.14Te. In Sydney, the recent front-runner Materials sector lagged technology, as the VP of CISA suggested China could consider banning iron ore imports at spot level - an apparent escalation of price contract negotiations with the Aussie miners.

- In currencies, commodity majors outperformed, being led by the Australian dollar in its post-RBA rally. AUD/USD is thus far the only pair to break out of the 2-month consolidation range and was last seen approaching 0.83 handle. USD/CAD was also targeting a 9-month low under 1.0780, while NZD/USD reversed the post trade deficit decline to briefly rise above 0.66. In European majors, the dollar was broadly sold in late session, as EUR/USD rose to 1.4270, GBP/USD saw its high above 1.6520, and USD/CHF traded down to 1.0860. Japanese Yen was once again narrow against USD around 95.00 handle but weaker against the rallying European and commodity currencies.

- Crude oil prices opened the Asian session lower, but have since moved off of their worst levels, in line with the rebound being seen in the commodity currencies against the US dollar. During the NY session, oil prices rose by 0.50% and closed above $68.30/bbl. In NY trading, oil prices were supported by the gain in equities and the better than expected US June new home sales data. Spot Gold is little changed on the session and has so far traded in a range between $954.50-$951.92/oz. September Silver futures are currently higher by more than 0.20%. Shanghai Copper futures are higher by more than 0.20%, tracking the gains in the commodity currencies against the dollar. In copper related news, an earlier report disclosed that production at Chile's Collahuasi copper mine will be reduced by 20,000 tons following equipment damage related to a power incident last week. In 2008, the Collahuasi copper mine had production of 415,000 tons. During the London session, LME copper rose to a fresh 9-month high as the metal was supported by the gains in US equities and economic data. In other metals trading, LME zinc and nickel are declining, while LME aluminum prices are higher. In aluminum related news, the CEO of US aluminum producer Alcoa was quoted as saying that inventory levels were very low due to demand conditions. According to Alcoa, companies have sold down their aluminum inventories to a level that is not maintainable. Alcoa's chief added that manufacturers in the U.S. are showing signs of rebounding from the economic downturn.