Asian Market Update: Multi-year high in New Zealand business confidence helps Kiwi recover from poor housing data ahead of RBNZ decision tomorrow; Japan steelmakers follow strong FY10 guidance from JFE Holdings

- Asian equity markets are trading lower, retreating from multi-month index highs established across the region in recent days, just as profit-taking hit Wall St. earlier in the US session. With just over an hour to go in Tokyo trading, the Nikkei is the only marginal gainer, rising back above 10,100 by 0.2% on the back of telecom and tech strength. Materials and energy led the other major regional bourses lower, with S&P/ASX, Kospi, and Taiex all losing about 0.5%. Ahead of the Wednesday US session, front-month S&Ps is marginally weaker by 0.3%, as US futures markets appear to have shrugged the leaked out Microsoft-Yahoo search partnership report. According to "All Things Digital" rumor, the deal would involve revenue sharing between companies and not contain an upfront payment to Yahoo.

- In notable economic data, New Zealand saw mixed bag of business confidence and housing figures. Released earlier, June building permits marked the lowest level since January of 2009 at -9.5% v -5.0% expected, prompting some Kiwi selling.
The subsequent business confidence came in at multi-year high of 18.7 vs 5.5 prior, helping NZD bounce back to trade relatively stronger than other majors. In other economic figures released on the session, Australia June New Home Sales came in at 0.5%, above prior -5.7%. In Japan, Y/Y retail sales were weaker than the expected -2.5% at -3.0% and also contracted on a monthly basis by -0.3% v 0.4% expected. Despite the worse than expected retail trade however, Japan's Ministry of Finance raised its economic assessment in April-June report for the first time since April 2004, citing certain areas of economy showing signs of recovery.

- Among other speakers, PBOC's Zhou tempered upbeat comments from several govt agencies recently, suggesting that some amount of uncertainty did remain over the extent of economic growth. Regarding the dollar, Zhou said there was no discussion of USD status as a reserve currency, but did urge the Fed to manage inflation expectations in reference to the clearly dovish tone seen from Chairman Bernanke as recently as last week. In Australia, Prime Minister Rudd indicated the economy is facing a rise in unemployment but also foreshadowed increasing prospects for an RBA tightening. Note that following the upbeat sentiment from RBA Governor Stevens in the prior session, implied interest rate probability saw as much as a 50bp increase in the bank's 3.00% cash rate before the end of 2009, up about 25bps ahead of the Stevens statements.

- In equities, Japanese Q1 earnings season is set to shift into higher gear with afterhours reports from Honda, Nissan, and Nomura. Steelmaker JFE Holdings rallied 4% after forecasting stronger FY09/10 outlook despite posting weaker than expected Q1 results. However, during today's session, some of the other Tokyo steel names reported Q1 comparatively weaker. Nippon Steel posted Q1 Net loss ¥42.3B v profit ¥82.8B y/y, Op loss ¥53.4B v profit ¥119.7B y/y, Rev ¥745B v ¥771.9Be (one estimate) with omitted interim dividend, while Nisshin Steel reported Q1 Net loss ¥52.6B v loss ¥50e, Op loss ¥42.1B v loss ¥44.0Be,Rev ¥83.9B v ¥171Be. Nippon Oil negated the worse than expected steelmaker data however, posting Q1 Net profit ¥28.5B v ¥17.0Be, Op Profit ¥51.6B v ¥50.0Be, Rev ¥1.24T v ¥2.27Te. In terms of FY outlook, Nippon Oil saw weaker earnings but higher than expected top line at ¥5.76T. In notable Nikkei names in the press, Nomura was reportedly selected to manage Japanese government's public-private fund, and Nissan was said to expand its China presence by building a 3rd factory, but refuted those rumors, noting it would only expand its capacity in the existing facilities.

- Outside the Nikkei, Samsung Electronics target was raised by Citi to KRW900K from KRW810K, and Hyundai Steel posted Q2 results that were roughly in line with estimates, reporting Operating Profit KRW135.3B v KRW139.6Be, and Rev KRW1.95T v KRW1.98Be. In Taiwan, Commercial Times said Taiwan Semiconductor Manufacturing Co. saw rising orders for 40-Nanometer process technology from NVidia and AMD rising, allowing for mass production of the technology to commence by August. Over in Sydney, the large drop in copper sparked a selloff in the miners, with about a 2% decline for BHP and Rio Tinto. Separately, BHP was rumored to have reached 33-40% iron ore price cut agreement with unnamed customers, and Australian Financial Review had also speculated that BHP may be considering a bid for Alumina. In Aussie financial sector, Macquarie was cautious in its outlook for the remainder of the year, noting that it was too soon to call the end of volatility with further likelihood of one-off items. Elsewhere, NAB confirmed press speculation it would enter a broking alliance with Goldman Sachs's Australia unit, controlling about 80% of the JV partnership.

- In currencies, European majors traded in narrow ranges after registering some broad-based declines in the course of the European session. EUR/USD hit a low under 1.4140, GBP/USD tested 1.64, and USD/CHF rose as high as 1.0770. ECB's Papademos spoke earlier in the session, offering a more dovish outlook on inflation by suggesting that 2010 view is "well below our definition of price stability" around 1.0%. Recall in its last post ECB decision statement, Trichet said the near term could see below trend inflation levels. Commodity majors also traded generally weaker amid the more prevalent risk aversion in the session. AUD/USD traded down to 0.8230s, NZD/USD saw the downside of 0.6550, and USD/CAD traded as high as 1.09 earlier in the US hours. Japanese Yen was firmer, tracking general equity weakness, as USD/JPY fell below 94.20 and EUR/JPY declined under 133.50.

- Crude oil prices are lower, after dropping by more than 1.5% in NY trading. During the US session, oil prices declined after the US consumer confidence data missed expectations. In Asia, crude is seeing follow-through selling following the API data that was released after the US equity close. According to API, weekly crude inventories unexpectedly rose, while gasoline stocks were higher than expected (API PETROLEUM INVENTORIES: CRUDE: +4M V -1ME; GASOLINE: -47K V -600KE). Later today, the US Department of Energy will release its weekly inventories data. In terms of Japanese oil news, weekly crude inventories rose to 16.3M kiloliters from 16.2M, while gasoline stockpiles declined to 2.1M kiloliters from 2.2M, during the week ended July 25. In China, a state media report disclosed that the government planned to lower petroleum and diesel prices by CNY220/ton as of July 29. The reported fuel price cut follows a report in the July 21 edition of the China Daily which noted that China could seek to lower retail fuel prices at the end of the month by CNY400-500/metric ton if international crude prices moved below $60/bbl. Spot Gold prices are higher by more than 0.10%, after declining by more than $14 during the NY session. Gold prices dropped following the disappointing US consumer confidence data. Gold prices might also be weighed down by the fact that China's Vice Premier Wang did not comment on any concerns about the weakness of the US dollar in his earlier statement. In other metals, Shanghai Copper prices are lower on the session, tracking the earlier decline in LME copper.