Asian Market Update: RBNZ stays on hold but allows for more easing, sinking NZD; Tokyo automakers rally after strong Honda, Nissan earnings

- Asian equity markets are trading with a predominantly bearish tone, with S&P/ASX being the only clear favorite to trade higher by 0.7%. Meanwhile, equities in the mainland China region are once again notably weaker: Shenzhen is leading the losers with a 1.8% drop after plummeting in the prior session, Taiex is off by 0.9%, and Hang Seng is down 0.5% after trading lower earlier in the day. Korea's Kospi slide is more muted at -0.5%, while the Nikkei has traded on both sides of prior close and was last seen down 0.1%. Ahead of the Thursday US session, S&P futures are slightly higher by 0.3%, and benchmark treasury yields are ticking higher to 3.68%.

- RBNZ interest rate decision marked the key economic event early in Asian trading, staying on hold at 2.50% as widely expected. However, subsequent statements from Gov Bollard torpedoed the kiwi dollar, calling for additional modest easing in quarters ahead. Overall, RBNZ said the cash rate would either remain at current levels or come down through the second half of 2010 amid expectations of ongoing economic malaise - all despite some evidence of leveling off in rate of contraction. Bollard and other NZ officials, who have been determined in driving NZD lower to help the struggling exporters and have taken numerous occasions for verbal intervention, said it "will be some time before growth returns to healthy levels."

- In other economic data, Australia's June building approvals saw its best level of growth on a m/m basis since May of 2005 at 9.3% - better than 8.0% expected and prior month's -11.0%. Over in Japan, June preliminary industrial production came in at 2.4% m/m, roughly in line with estimates. In notable speakers, BOJ's Noda forecasted a sharp improvement in GDP for the most recent quarter and suggested that risks of deflationary spiral are not rising, even though the overall financial conditions in Japan were still seen as severe. PBOC's Vice Governor pledged to use market tools, rather than quota controls, in preserving reasonable amounts of liquidity.

- In equities, energy and materials were the big laggards across the region, while auto names in Japan outperformed on the session following strong Q1 earnings from Honda and Nissan. Both of those names were up about 7%, while Toyota gained about 3.5%. Elsewhere on the Nikkei, Fujitsu rallied 3% ahead of afterhours earnings on JP Morgan upgrade, Nomura also gained 3% after strong Q1 results on the top line in the prior session, but Sumitomo Metal did not measure up to the standards set by JFE Q1 results the day before, losing 2%. Japanese press also speculated on Nippon Yusen signing a 20-yr contract with Vale to transport 1.3M tons of iron ore per year from Brazil to China as of 2012. Among other firms reporting Q1 results, Sumitomo Metal posted Q1 Net loss ¥32.4B v profit ¥43.5B y/y, Operating loss ¥34.5B v profit ¥62.1B y/y , Rev ¥290.5B v ¥327.6Be; Mitsubishi Motor reported Q1 Net loss ¥26.4B v loss ¥26.6Be, Op loss ¥29.6B v loss ¥23.3Be, Rev ¥259B v ¥256Be; and Kobe Steel posted Q1 Net loss ¥33.3B v loss ¥25.3B y/y, Op Loss ¥13.6B v profit ¥45.3B y/y, Rev ¥377.9B v ¥433.6Be.

- Outside the Nikkei, Sydney rally was driven by financials, with the major banks rising by over 2% on the back of Citi sector upgrade to Buy as a result of better access to capital. CEO of Qantas was also quoted in the local press, noting signs of recovery in air traffic. In South Korea, Telecom sector outperformed on the back of solid results from SK Telecom two days ago, helping those shares rise to their best levels since April. In regional macro developments, reportedly South Korean fishing boat has been captured by the North patrol ship.

- In currencies, NZD/USD was the biggest mover of the day following the soft tone seen in RBNZ decision, falling about 100 pips below 0.65 for the first time in over a week. In other commodity FX, USD/CAD ranged around 1.09, while AUD had actually climbed back above 0.82 following the broad USD rally in US hours. EUR/USD consolidated the decline above 1.4050, GBP/USD was up about 40 pips from opening levels above 1.6410, and USD/CHF bounced lower from 1.09 handle.
Japanese Yen volatility against the greenback was once again limited over the Asian hours, ranging between 94.80-95.30.

- At the time of writing, crude oil prices are lower by more than 0.10%, but off of their worst levels. During the US session, oil prices declined by 6% on the firmer dollar, decline in equities and bearish weekly crude inventories data. During the US session, the Department of Energy disclosed that weekly crude inventories unexpectedly rose, while gasoline stockpiles were lower than expectations (DOE CRUDE: +5.15M V -1ME; GASOLINE: -2.31M V -600KE). Spot Gold is marginally higher, after the metal declined by more than $11 in NY trading. Factors that weighed on gold prices during the US session included the firmer US dollar and concerns that ETFs have been paring their gold holdings. Earlier during the session, the SPDR Gold Trust ETF disclosed that its holdings declined for the session consecutive session and by 10.4 metric tons to a total of 1,072 metric tons.