Asian Market Update: Equities pare initial gains as Shanghai, Taiwan hit fresh multi-week lows; RBA minutes shut the door on additional easing, but cautious over premature tightening

- Asian equity markets are trading with a heavy tone once again, posting more losses across the board following an early-session short-covering bounce. Taiwan and Shanghai are the biggest losers in the region, shedding 2% and just over 1% to trade at 1-month and 2-month lows respectively. In primary Asian bourses, Nikkei225, S&P/ASX and Kospi had all traded in the positive in mid-afternoon but are now in the red once again, declining marginally with just under 2 hours to go in Tokyo. High-beta energy, financials, and materials sectors are leading the decliners across those markets, even though crude prices staged an early session rally. Ahead of the Tuesday session in the US, front-month S&Ps are well off session highs above $982, trading around unchanged near $978.

- In a keynote economic event on the session, Reserve Bank of Australia released the minutes from its August 4th meeting, when the Board had notably removed the possibility of further easing from its statement. Since that decision, central bank's monetary policy outlook raised its 2009-11 GDP and inflation forecasts, while RBA Governor Stevens repeatedly stated intent to remove monetary accommodation even as unemployment rate continues to tick higher. With the possibility of more rate cuts subsequently negated, markets tuned in for any specific details that the RBA is prepared to lift its cash rate over the near term. However, the policy board brushed its outlook in broad strokes, suggesting that a less expansionary stance was warranted if recovery continues to evolve according to expectations but warning of the risks of premature tightening as being detrimental to early signs of recovery. The assessment of conditions was just as mixed as that of policy prospects, with inflation anticipated not to fall as far as expected but retail spending trending lower m/m. Earlier in the session, Australia's Treasurer Swan was also cautious on policy shift, noting that RBA still expected below-trend growth and would keep stimulus in place as long as it was needed.

- In equities, some of Japan's carmakers continued to respond to rising auto demand by expanding capacity. Toyota said it would resume weekend shifts at one of its plants starting in September, and Mitsubishi planned to hire "several hundred" workers following upward adjustment in production overview. Elsewhere in Tokyo, Casio rallied 6% on Credit Suisse upgrade to Outperform, while Tokyo Steel said it would raise its H-bean prices by ¥5K/ton to ¥70K due to higher scrap metal costs. Over in Sydney, home building materials firm James Hardie was one of the biggest gainers, picking up over 20% after posting Q1 net $41.6M (ex items) v $16.9Me, Rev $284.5M v $264.8Me. The company also forecasted low levels of activity in Australia and New Zealand, but saw US home building market near a bottom. In other winning S&P/ASX movers, United Group rose 2% after its fiscal year result missed on the bottom line but beat revenue view, gold producer Newcrest rose nearly 1% on UBS upgrade to Buy, and OneSteel rallied above 4% after posting better than expected results. OneSteel full-year earnings beat consensus A$207.8M at A$230M, and sales came in at A$7.24B v A$6.86Be. The company also saw destocking in China as complete, but noted that external demand from the region would continue to underpin demand and prices, also calling for a bottom in steel prices. Among some of the declining shares in Sydney, Challenger Financial was down as much as 10% after NAB confirmation it would buy the company's residential mortgage portfolio for A$385M, and Bluescope Steel was down by about 1% following HSBC downgrade to Neutral. Shares of Amcor were halted ahead of the company's FY earnings of A$211M v A$355Me on sales of A$9.5B v A$10.1Be. Amcor also confirmed it would buy Rio Tinto's Alcan packaging unit for A$2.03B, with as much as $1.6B coming out an equity offer.

- In currencies, European and commodity majors have retraced some of their recent declines at the expense of the greenback and Japanese Yen. EUR/USD rose about 60 pips to as high as 1.4130, GBP/USD backed away from 1.64 after a 70-pip rally, and USD/CHF fell to 1.0740's after US session high above 1.0820. Japanese Yen was lower by over 100 pips in the crosses, with EUR/JPY and GBP/JPY briefly rising above 134.00 and 155.50. On a relative basis, USD was also stronger than the Yen, rising as high as 95.00 from intraday lows below 94.30. AUD declined relative to European majors after RBA failed to infuse markets with confidence over imminent rate hikes, as EUR/AUD and GBP/AUD rose moderately after the minutes release. AUD/USD also could not match the dollar pressure in other majors, trading sideways just below 0.8250.

- During today's session, crude oil prices have swung between gains and losses, after declining to a 2-week low in NY flooring trading. Oil prices declined in NY trading amid the declines in US equities and the firmer dollar. Additionally, oil traders have been focusing on the performance of the Shanghai Composite, after the index closed down by more than 5% during the prior session. In terms of the Atlantic hurricane season, Hurricane Bill has been raised to a Category 2 level from level 1. According to the most recent National Hurricane Center update, Bill had maximum sustained winds of approximately 100 mph vs. 90 mph previously. In terms of location, Bill's center was about 860 miles east of the Lesser Antilles in the Caribbean and its direction was west-northwest at about 17 mph. According to a recent Wall Street Journal article, meteorologists do not project that Bill will reach the US at this point Looking ahead, events of interest for the crude oil market include the later today releases of US housing starts data and weekly US API inventories data. Spot Gold has rebounded in Asia on possible bargain hunting, after the metal plunged in NY trading. In other commodities, Shanghai Copper has risen by as much as 1.3%, after the metal declined by as much as 5% during yesterday's session. Shanghai Copper is tracking the earlier gains in LME copper. Additionally, the earlier released US Empire Manufacturing data lent some support to base metals, but the market's focus continues to be on China.