Forex Bull

- Asian equity markets are trading on a slippery slope for second consecutive session, rising in early trading before falling into negative territory in the latter half of the day. Nikkei225 opened up 0.3%, but those gains were erased coming out of midday break, as investor rotation into defensive health care / utilities sectors weighed on market sentiment. In Sydney, the risk averse health-care names also led the gainers as the overall index sank 0.2%, weighed down by the heavy tone in energy and materials names. Korea’s Kospi was slightly more resilient thanks to a firmer financial sector performance following much better than expected Q2 results from Korea Exchange Bank. Ahead of the Wednesday US open, front-month S&Ps are down about 0.2% at 1,003 while benchmark treasury yields are slightly lower around 3.6750%.

- Economic calendar was on the lighter side, with Australia’s June trade balance highlighting a quiet session with a mixed result. As expected, Australia posted a third consecutive deficit, but the -A$441M level was well below the -A$800M forecasts. Overall, exports increased 2% m/m and imports remained flat. However, the positive impact was clouded by a downward revision in the prior month from -A$556M to -A$737M. Furthermore, widely monitored exports to China fell 6.6% m/m to their lowest levels since February. In second tier Aussie data, July AiG performance of Services index retraced back into contractionary territory at 44.1 after climbing to its first expansion in 15 months back in June. Overall, the deterioration in Aussie fundamental data follows a more cautious tone from the RBA decision in the prior session and could further detract from the rate-tightening bias implied by Governor Stevens early last week, particularly if tomorrow’s employment data disappoints. Meanwhile, Treasurer Swan stated that cost of capital is likely to remain high worldwide and will impact Australia’s economy and terms of trade.

- Among other notable speakers, BHP iron ore division executive suggested that while Chinese imports were on the rise, the demand may be more driven by the government stimulus than underlying conditions. Furthermore, the official suggested that trading on current spot prices was hardly sustainable considering their 25% premium to benchmark rates. Despite the near term uncertainty, BHP was more upbeat over the medium term, citing full ore sales and production capacity even in the face of the current market conditions. On a related note, Chinese press reported that CISA has refuted press speculation of suspended benchmark price talks with the miners, while the Australia officials remained optimistic of having a deal shortly.

- In equities, Korea Exchange Bank bolstered the Kospi, posting a Q2 Net profit of KRW238B v KRW144Be and Operating profit KRW238B v KRW215Be on Revenue of KRW4.7T v KRW3.4T. In Tokyo, Honda CFO forecasted company return to profitability by the second half of the year without the need for additional financing. In an earlier report, Honda raised its 2009 global vehicle production by 90K units – about a third of last month’s overall levels. Elsewhere on the Nikkei, Japanese press said Toshiba’s LCD unit would enter into a joint venture with China’s Greentech to collaborate on mobile phone LCD production. In Australia, retailer David Jones fell 7% after barely topping comparable sales in Q4 even as same-store sales fell 1.2%. Among the gainers, Suncorp and Axa rose about 6%: Suncorp was rumor of an acquisition interest from ANZ, and Axa first half earnings were in line with profit estimates.

- In currencies, European and commodity majors traded mixed, retracing some of the dollar selloff seen in the US session. EUR/USD ranged within 30 pips around 1.44, GBP/USD also traded sideways between 1.6920-50, and USD/CHF oscillated around the 1.06 level. Commodity currencies traded notably weaker against USD, as AUD/USD fell below 0.8420 on mixed economic data and USD/CAD rose above 1.0730. Japanese Yen is firming up across the board as USD/JPY fell below 95.00, EUR/JPY was below 137, and GBP/JPY was off about 100 pips from intraday highs around 160.70. AUD/JPY appears to be particularly vulnerable after the pair was unable to sustain its breach of multi-month 80.40 high.

- Crude oil prices opened the Asian session higher, but have since moved off of the session’s best levels. Oil prices were initially supported by the US weekly API inventories data that was released after the US close. API disclosed that weekly oil inventories unexpectedly declined, while gasoline stockpiles rose (API PETROLEUM INVENTORIES: CRUDE: -1.5M V +800KE; GASOLINE: +2.1M V -1ME). Later today, the US Department of Energy will disclose its weekly inventories data. In terms of Japanese oil inventories, during the prior week crude stockpiles declined to 15.7M kiloliters from 16.3M, while gasoline inventories rose to 2.2M kiloliters from 2.1M. Spot Gold prices are declining, after the metal rose by more than $10.00 during the US session. In terms of inflation related news, today’s WSJ cited unidentified people as saying that the US Treasury may announce a plan this week to sell more inflation-protected bonds (TIPS) in a move to satisfy demand from China, among other investors. The article follows another recent unconfirmed report which noted that the US government pledged to China, during last week’s economic talks, that it would remain committed to the issuances of TIPS. In the past, there have been concerns that higher inflation and a decline in the dollar could erode the value of Treasury investments. Market developments related to the dollar and inflation are seen as key determinants for the future direction of gold prices.

www.tradethenews.com

Here is the original post:
Asian Market Update: Equities pare gains amid defensive sector rotation; Aussie trade deficit shrinks, but exports to China contract