Asian Market Update: Focus on Australia as Labor PM Gillard retains govt in 76-74 final split; RBA on hold, more cautious on 2011 growth in US and EU

As of 2:00amET:

- Nikkei225 -0.8%

- S&P/ASX flat

- Kospi -0.2%

- Taiex -0.1%

- Shanghai Composite -0.4%

- Sept S&P Futures -0.01% at 1,103

- Dec Gold flat $1,251/oz

- Oct Crude oil -0.3% $73.88/brl

- Dec Wheat +0.5% at $7.45


Economic Data

- (AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH TARGET RATE UNCHANGED AT 4.50%, AS EXPECTED

- (JP) BANK OF JAPAN (BOJ) LEAVES TARGET RATE AT 0.10% AS EXPECTED; ECONOMIC ASSESSMENT UNCHANGED IN SEPTEMBER

- (JP) JAPAN JUL PRELIM LEADING INDEX CI: 98.2 V 98.2E; COINCIDENT INDEX CI: 101.8 V 101.8E

- (AU) AUSTRALIA AUG AIG PERF OF CONSTRUCTION INDEX: 43.2 V 43.3 PRIOR (1-yr low)

- (PH) PHILIPPINES AUG CONSUMER PRICE INDEX M/M: 0.2% V 0.2%E; Y/Y: 4.0% V 3.9%E

- (JP) JAPAN AUG OFFICIAL RESERVE ASSETS: $1.07T V $1.06T PRIOR

- (UK) UK BRC AUG RETAIL SALES MONITOR SSS Y/Y: 1.0% V 0.5% PRIOR; TOTAL SALES Y/Y: 2.8% V 2.6% PRIOR


Overview/Top headlines

- Asian equity markets are modestly lower following yesterday's catch-up rally, with the shine of the strong non-farm payrolls data in the US on Friday beginning to lose some of its luster. The session was particularly volatile in Australia, where one by one, holdout Independent MPs announced their alliance. The result was a 76-74 split in favor of Labor Party and PM Gillard, perceived as a headwind to miners by virtue of maintaining MRRT tax as well as weighing on Australian dollar on concerns of reduced overseas investment in the economy. On the monetary front, RBA left rates unchanged at 4.50% as widely expected, but offered no evidence it would consider renewed tightening as it downgraded growth prospects for US and EU economies. AUD was also weaker following RBA decision, falling as low as 0.9117 from session open around 0.9170.

- In Japan, BOJ decision was likewise mum on the impact of strong currency on the economy, disappointing traders looking for a more adamant position that could pave the way to a Ministry of Finance intervention. Instead, policymakers struck a familiar tone, reminding markets the pace of deflation is moderating and economy showing further signs of recovery, while USD/JPY tested the downside of ¥84.

- EUR came under pressure in the wake of a WSJ report that European Bank stress tests understated some of the banks' holdings of sovereign debt, falling about 100pips to 1.2780. If losses are maintained, the decline is setting up as the first losing session in 5 trading days while shifting the spotlight from US economic data back to slumping EU financials and rising cost of sovereign debt.


Macro/FX

China

- (CH) China may allow farmers in rural areas to use land as loan collateral - Times

- (CH) China Ministry of Industry and Information (MIIT): Industrial output growth may slow to about 10% in H2, expected to reach 13% for full year

- (CH) China Gov't: Announces plans to encourage low end industries to relocate off the coast to inland provinces to accelerate restructuring and transform the economic growth model - China Daily

- (CH) China Vice Premier Wang: Wants to create a sound investment environment for foreign companies; Should strengthen economic cooperation with the US on infrastructure renovation - Chinese press

Australia/New Zealand

- (AU) AUSTRALIA INDEPENDENT OAKESHOTT TO SUPORT INCUMBENT LABOR AND PROVIDE PM GILLARD THE VOTE TO FORM THE NEXT GOVERNMENT

- (AU) Australia Independent MP Bob Katter: To back Opposition Coalition Government; Suggests remaining 2 independents may support Labor Govt

- (AU) Australia Independent Windsor: To support PM Gillard's Labor Gov't

- (NZ) Economists predict New Zealand will have a short-term income drop as a result of Saturday's earthquake, but also see impact benefiting economy overall because of higher construction demand - Dominion Post

- (NZ) Moody's: New Zealand's 7.1 magnitude earthquake on Saturday not expected to result in "stress" on sovereign rating

Japan

- (JP) Japan Econ Min Arai: Economic panel set up to examine how best to implement measures to boost Japan's growth will meet on Sept 9th; BOJ Gov Shirakawa to be a panel member

- (JP) Japan Govt will begin to sell companies carbon credits generated by households that purchase alternative energy systems or eco-cars purchased using public subsidies; First time that a country has attached an economic value to household carbon credits - Nikkei

- (JP) Japan spokesperson Sengoku: Government will set up a panel in October to assess budgetary matters - Japanese press

- (JP) Former Japan DPJ Sec-Gen Ozawa: To "swiftly deploy" ¥2T for new economic stimulus measures if elected party leader; May have to pass supplementary budget to boost fiscal spending - Nikkei News

Korea

- (KS) South Korea Finance Ministry: Sees Aug retail sales down from July, Industrial production similar to July, current account surplus around $1.5B ($5.9B prior)

- (KS) North Korea requesting shipments of rice and cement from South Korea through Red Cross - Korean press

- (KS) South Korea Fin Supervisory Service (FSS) Gov Kim Jong Chang: Plans to step up supervision of household debts; High amounts of debt and heavy exposure to the property market deserved attention - Speech with local businesses

Other

- (EU) European Bank stress tests understated some of the banks' holdings of sovereign debt - WSJ

- (PH) Philippine Central Bank Gov Tetangco: Inflation environment is "manageable"; Monitoring developments for changes in inflation outlook that may impact policy

- (IN) Reserve Bank of India deputy governor KC Chakrabarty: Has asked banks to drastically bring down the cost of smaller transactions to increase penetration of banking services; Directed at banks that have failed to use technology to improve efficiency and productivity - Economic Times


Equities

Australia/New Zealand

- BHP: Looking to develop a potash mine with a China company Zhongchuan International Mining - press

- LEI.AU: To announce retirement date of CEO Wal King in coming days - The Australian

- QAN.AU: Plans to return some of the routes currently being services by subsidiary Jetstar; Says company is looking to improve operations "to take advantage of a rebound in business travel demand." - The Australian

Japan

- Nippon Yusen: Subsidiary NYK-Hinode Line entered into a long term agreement to transport LNG plants to the Woodside Petroleum Gorgon project in Australia

- Mitsubishi UFJ Financial Group Inc: Bank of Tokyo-Mitsubishi UFJ has cut annual yield on ordinary deposits to 0.02% from 0.04% prior (first cut in 9 months and the lowest level since 2006) - Nikkei

- Tokyo Electron Ltd.: Re-working production process for semiconductors to cut delivery time in half and reduce costs by at least 30% - Nikkei

China

- Hon Hai Precision Industries: WSJ comments on company efforts to move production further inland in an effort to meet rising wage pressure and labor discontent

Korea

- Korea Development Bank (KDB) to buy Daewoo Engineering by November - Yonhap press

- (JP) South Korean automaker CT&T has decided to sell their eZone sedan and offer the option to rent the battery on a monthly basis; Making the cost of the vehicle the same as a minicar - Nikkei

Other

- RDSA.NV: Shell Australia Chairman: Prelude LNG final investment decision will be made in H1 of 2011; Further tax changes may scare investors away - speaking at business breakfast in Perth, AU

- Chimei InnoLux Display:Chi Mei Innolux has raised its wages for factory workers by over 10% - Taiwan press

- AIG: China Strategic Received Formal Notice From Taiwan Min of Economic Affairs on Nan Shan Rejection

US

- ORCL: Names Mark Hurd President; Charles Phillips resigns as president

- ARG: APD raises their cash offer to $65.50/share from $63.50/share (offer represents approx. a 3% increase); total offer is worth about $5.5B


Commodities

- AWB.AU: Strong interest seen in Australia's wheat; Production prospects benefiting from rain activity

- (AU) Australia Wheat crop estimated at 4M tons with total crop output estimated at 7.3M tons for 2010 - Govt Department Website

- XAU/USD: Sudan may double its production of gold to more than 40ozs by 2012 if the southern part of the country with majority of oil production secedes in upcoming referendum

- (JP) Falling prices on iron ore and coking coal are expected to reduce costs for Japanese steelmakers - Nikkei

- XTA.UK: Coking coal is undersupplied in the medium term

- (RU) Russia President Medvedev may lift the grain export ban ahead of the December 31, 2010 expiration date - Moscow Times

- (MX) Mexico budget accounts for crude oil prices of $65/brl - Excelsior