Asian Market Update

China, US trade accusations on protectionism; Kiwi dollar falls on poor retail sales; Hong Kong, South Korea officials see ongoing need for fiscal, monetary stimulus

Asian equity markets saw some of its recent risk appetite abating in the early Monday session, stroked by retaliation from Chinese authorities on accusations of trade protectionism against the US. Following the Friday move by the Obama administration to authorize new tariffs on car and truck tire imports, officials in China launched an investigation that US autos and chicken products are being dumped in the Chinese markets, helping the indices in Japan, Korea, and Australia pare last week's gains. With just under 2 hours to go in Tokyo, Nikkei225 is leading the slide with an over 2% drop, just as the strength of Japanese Yen continues to impact exporters. S&P/ASX and the Hang Seng are off by about 1%, while both the Kospi and the Taiex are down about 0.7%. Incidentally, Shanghai Composite is the only major regional market in the green, albeit just slightly, unable to gather momentum beyond the psychological 3,000 mark. Ahead of the Monday open in the US, front-month S&Ps are off by 0.9% at 1028.

In notable economic data, New Zealand July retail sales echoed the slide seen late last week in Australia. July headline fell for the first time in 4 months to -0.5% - the worst level since Jan 2009, while ex-auto number was the worst of the year. NZD fell moderately following the release, underperforming the rest of the majors across the board. Over in Japan, July final industrial production rose 2.1% v 1.9% prior, while capacity utilization advanced 3.9% v 2.3% prior.

In equity movers on the Nikkei, Japan Airlines was among the biggest gainers, picking up 7% after an FT report that American Airlines and Delta could take part in buying up as much as $2.8B in equity. Among the decliners, retail sector's Aeon dropped 4% following an 8.9% slide in its August same-store sales. Elsewhere in Japan, a poll of private economists forecasted real GDP in July-Sept period rising as much as 3.4% on an annualized basis, up from 2.3% seen in the prior quarter.

Over in China, NDRC reported an 8.2% increase in electricity usage for the month of August. Also helping matters in Shanghai was the local press report of rising order books and a shortage of labor, even though the feature did attribute worker demand to employer reluctance to add staff amid uncertainty over sustainability of the recovery.

In Australia, Treasurer Swan tempered some of the optimism regarding the jobless rate remaining below 6%, forecasting further increase in unemployment justifying ongoing fiscal stimulus measures. Commodities markets continued to drive major ASX shares, with gold producers Newcrest and Lihir picking up 3% on spot metal rally above $1,000 and energy sector's Santos falling over 2% on $4 two-day slide in front-month crude. On a related note, Shell joined JV partners Chevron and ExxonMobil in approving the Gorgon natural gas project. The development was cheered by the Rudd administration, forecasting as much as A$40B in govt tax revenue and A$300B in export earnings.

Elsewhere in Asia, South Korea Finance Minister Yoon said the government would maintain its 2009 GDP growth forecast of -1.5% and suggested that interest rate tightening by the BOK would be premature. That sentiment follows a mixed central bank message late last week, perceived by the markets as potentially implying a more hawkish stance. Separately, BOK Governor Lee commented on rising volatility in raw materials prices and fund flows complicating an inflation-targeting monetary policy system. Over in Hong Kong, HKMA's Yam was also explicitly cautious about removing stimulus too soon, suggesting the financial system still require government support and warning that an early exit would impede the global recovery.

In currencies, dollar sellers took some profits against the European and commodity majors, while Japanese Yen traded sideways, unable to breach 90.20 USD/JPY intraday low set on Friday. EUR/USD and GBP/USD were down just over 50 pips around 1.4530 and 1.66 at their lowest levels. The Kiwi dollar traded weakest among the majors, falling to 0.6960's and 63.00 vs USD and JPY. Other commodity FX tracked the onset of risk aversion, with AUD/USD falling about 80 pips toward 0.8550 and USD/CAD rising above 1.0850.

Crude oil prices are lower by more than 0.50% and trading below $69/bbl. Crude oil prices are tracking the weakness in equities and the commodity currencies. Spot Gold has moved off of its best levels, which were seen above $1,008/oz on the firmer US dollar. In other metals, Shanghai Copper futures have fallen by as much as the 5% daily limit. The copper decline comes as Shanghai Futures Exchange copper stockpiles rose by 12% last week to more than 97K metric tons.

Trade The News Staff
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