Asian Market Update

Daily Forex Fundamentals | Written by Trade The News | Jun 22 09 05:58 GMT |

Japan Industrial Sentiment Brightens; Premier Wen, George Soros Bullish on China, but World Bank Cuts its Global and Emerging Market Outlook Asian equity markets are predominantly in the green, opening the week by shrugging off the caution seen late on Friday with response to some better than expected economic data. With about 90 minutes to go in Tokyo trading, Nikkei225 is in rally-mode coming out of midday break, gaining about 1% to 9,880. Hang Seng and Taiwan are up 2.7% and 1.4% - outperforming on respective macro developments, while S&P/ASX and Kospi are up only 0.5%. Ahead of the US open, front-month S&Ps are lifted by 0.3% above $918, while benchmark yields remain contained below 3.80% ahead of the much-anticipated Fed decision this Wednesday. Economic docket saw a strong industrial sector update from Japan, housing figures from UK, and 2nd tier data from Australia and New Zealand. Japan's Q2 BSI All Industry index improved on a Q/Q basis to -22.4 V -51.3 prior, and large manufacturers saw its best data since Q3 of 2008 at -13.2 - a sharp gain from the prior -66.0 and testament to the overall industrial/manufacturing sector improvement noted by both the Bank of Japan and Japan's government. April Tertiary Industry Index suggested that recovery may be at least a couple of months in the works, coming in 2.2% - the highest level since January 2006. Housing data from the UK were a disappointment, with June HPI contracting for the first time since January at -0.4% vs +2.4% seen in May. In Australia, May New Vehicle Sales saw its best increase since January 2005 at 5.4% v 1.7% prior, but New Zealand's credit card spending declined 2.4% in May vs 1.6% drop in April - evidence of local currency strength weighing on the overall economy as implied by local Prime Minister and Finance Minister in recent days. Among notable speakers and other macro oriented developments, China's Premier Wen was positive on domestic economy, noting that it has been recovering firmly as a result of the accomodative monetary and massive stimulus measures applied. Investor George Soros was also positive on the country, suggesting that the impact of the credit crisis in the region has been minimal while also calling a bottom for the worst of the financial crisis. Asia Development Bank's Kuroda echoed the above sentiment, citing rebound in commodity prices as evidence of a bottom with clearer signs of recovery to emerge toward the end of the year. Earlier in the session, China's May oil demand was said to have risen by 6% - the fastest rate of growth since August, matching a May rebound in China's power consumption that has conspicuously been contracting through April. On the flip side, World Bank has become increasingly more cautious about the overall global conditions and some of the other emerging economies. Chief Economist Lin cut his outlook for the global economy to -2.9% from -1.7% in 2009 and to +2% from +2.3% in 2010. Specifically, Lin cut 2009 growth for US to -3%, Japan to -6.8% and Russia to -4.5%, attributing his forecast to continued "dismal" financing climate, also cutting prospects for the Asian region's darling South Korea to -2% in 2009 before a 2% growth in 2010. Elsewhere in the region, Hang Seng and Taiex markets outperformed on a pair of bullish press reports for the local economies. South China Morning Post speculated Hong Kong's economy may grow in Q2 if the export sector can stop contracting. Over in Taiwan, the local economic affairs ministry was rumored to be discussing a plan to open its banking and insurance sector to Chinese investors - the event that sparked a sharp rally in the Taiex several weeks ago before politically sensitive govt officials tempered bullish optimism by talking down the prospects for greater cooperation with China in the immediate term. In other politically-driven events, Australia's Treasurer Swan dodged opposition's calls for his resignation, calling alleging of improper appropriation of govt loans "absurd". PM Rudd has stood by his Treasurer, demanding that the opposition present more concrete evidence of alleged favoritism. In equity-specific developments, Honda was up about 4% early after press reports that the company may invest up to $1B in a US electric car plant along with NEC. National Australia Bank was halted ahead of the open after announcing it would buy Aviva's Australian unit for A$825M. That deal is expected to close in Q4, with EPS being accretive in Yr 1 of the tie-up. In other merger news, Anglo American confirmed a preliminary interest from Xstrata, with the bid estimated to be valued at up to $34.6B. In Japan, Toshiba said it would cut its LED light bulb prices in half to address rising competition and expand company market share. In currencies, the greenback remained bid against most of the commodity and European majors, although price action saw traders remaining sensitive to near-term technical levels. EUR/USD and AUD/USD retreated to Friday support levels at 1.3880 and 0.7990 respectively. Sterling was rangebound between 1.6440 and 1.6510, and USD/CAD traded up by about 40 pips from opening levels to just below 1.14 handle. Japanese Yen retained its bullish tone despite the moderate risk appetite in equities, testing 96.00 handle vs USD and falling over one big figure against EUR to 133.15. In terms of the situation in Iran, a recent report noted that more than 450 people have been arrested in Tehran in relation to election related protests. The report follows earlier reports form Iranian state media noting that 10 people have died and more than 100 were injured on Saturday when clashes started between security forces and protesters. An evening report on Sunday from the Washington Post, noted that Tehran was quieter on Sunday, although eyewitnesses reported gunshots and sirens in the central Tehran neighborhood of Abbas Abad. At the time of writing, crude oil prices are lower for the second consecutive session, but have held the $69/bbl level. Oil prices are tracking the stronger dollar, and have so far failed to react to the weekend's election related protests in Iran. Additionally, some market players are noting that the recent bigger than expected rise in the US gasoline inventories is weighing on oil prices. Last week, the US Department of Energy reported that weekly gasoline inventories rose by 3.4M barrels against market expectations for a rise of 750K. Spot Gold is lower on the session, as the metal continues to consolidate between $928-$929/oz and $944/oz ahead of this week's Federal Reserve policy meeting. The $928-$929/oz area has been seen as the 100-day moving average, and $944/oz corresponds with the neckline of a head and shoulders top. In other metals, London copper has moved to a more than 2 week low on the firmer dollar. Also, copper is being weighed down by concerns that China may reduce its stockpiling of the metal, after the country's May copper imports rose to a record level. Additionally, it was reported that weekly copper inventories at the Shanghai metals exchange rose last week to the highest level in more than 20 months. Trade The News Staff Trade The News, Inc. Legal disclaimer and risk disclosure All information provided by Trade The News (a product of Trade The News, Inc. "referred to as TTN hereafter") is for informational purposes only. Information provided is not meant as investment advice nor is it a recommendation to Buy or Sell securities. 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