Asian Market Update: AUD Returns Post-RBA Gains on Sharp Contraction in Aussie Q4 GDP; Strong China PMI, Rumors of Additional Stimulus Help Global Equities Recover; Japan's Automakers Decline after US Sales Data, May Seek Govt Loans; EUR Falls to 3-Month Lows Below 1.25
- A whirlwind of volatility in equities over the Asian session once again marked Australia's economic data as its epicenter. Unlike yesterday's decision by the RBA not to cut interest rates that prompted a rise in risk appetite however, today's unexpected contraction in Q4 Aussie GDP did just the opposite, sparking the session's initial equity selloff across the board. GDP estimates ranged broadly from -0.2% to +0.5% and consensus pointed to 0.2% growth, however the actual figure came in well below the worst of projections at -0.5%, contracting on Q/Q basis for the first time since Q4 of 2000.
Gross national expenditures and downward change in inventories contributed to the negative GDP impact, while consumption and business investment proved to be insufficient in counterbalancing those factors. Australia's Treasurer Swan noted that considering the devastating impact of global crisis, Q4 outcome was not surprising, while continuing to insist that the government response was timely and not yet entirely felt in the economy. Additionally, Swan said that no quick fix was available for the economy, and Q4 result implied downside risk to 2009 forecasts. Earlier in the day, RBA's Edey noted that based on forecast growth to June of 2009, central bankers saw a "borderline recession" outcome. S&P/ASX index traded down as low as -2.5% on the heels of the GDP report before closing down 1.6% - the worst performer across the Asian region.
- Unexpected recovery in China's PMI released shortly after Australia's GDP subsequently halted the slide, as evidenced by a timely reversal in front-month S&Ps that took futures to a 1% gain. China's February Manufacturing figure came in at the highest level in 6 months at 49.0, registering a third consecutive increase. State Council Researcher Zhang reflected on the data as indication of industrial output in January-February exceeding levels seen in November-December, while also noting investment opportunities in energy and commodities for China's CIC wealth fund. Moreover, China's planning official added to bullish sentiment in Asian bourses with a pledge of further stimulus spending beyond the announced CNY4T plan to be spent on infrastructure, manufacturing, welfare.
Elsewhere, the country's vice minister said the housing sector is recovering and does not need any further support.
- In Tokyo, Nikkei225 reversed the early 1.7% slide to session lows after China's PMI and stimulus plans, finishing the day up 0.85%. Japan's automakers were weighed down by US vehicle sales reports that saw Honda, Nissan, and Toyota decline by just over 35%. Separately, Japanese press reported that Honda, Mitsubishi, and Nissan may seek government funds, with Honda subsequently confirming that report. Panasonic was also initially sharply weaker after Moody's placed its debt for possible downgrade, and NEC Corp reversed early 2% slide after the company announced it would close an LCD plant in Kagoshima. Nintendo was one of the few early risers, following a positive mention and a focus in partnership from Disney. In Tokyo speakers, BOJ's Suda warned about excessive central bank intervention in corporate finance, while also reflecting on evidence of recovery in China and further near-term weakness in Japan amid continued deterioration in US and Europe.
- Korea's Kospi saw a second consecutive daily reversal, finishing higher by 3.3% after trading down by as much as 1.7%. Aside from the China developments, news of Woori Finance and MacQuarie forming a $1B fund for investment in Korea as reported by the Knowledge Economy Ministry added to bullish sentiment. Share-specific news were mixed, with Hyundai Motor posting February sales figures nearly on par with y/y level and Posco planning to lower Q1 output by 700K-800K tons.
- In currencies, the dollar was stronger across the board on the heels of Aussie GDP contraction, maintaining much of its gains against the majors despite the bullish reversal in equities. EUR/USD fell below 1.25 for the first time since late Novemeber, GBP/USD breached 1.40 yet again to approach multi-week lows at 1.3960, and USD/CHF took out 1.18 for the first time since mid-February. In commodity FX, AUD/USD gave up all its post RBA gains before bouncing higher from 0.6280 near-term support, USD/CAD remained above 1.29 following today's BOC rate cut, and NZD/USD traded at fresh 6-year lows just above 0.49. Japanese Yen remained contained against the dollar despite the heightened volatility, ranging narrowly between 98.20 and 98.60.
- Crude oil prices are currently lower as the Australian GDP data reinvigorated concerns about global growth. During the NY session, crude rose by more than 3%, despite the decline in US equities. In oil demand related news, a report in the Japanese press noted that China might seek to invest a portion of its reserves to buy oil. Today's report related to China is not new. Back in early Feb, China's CNPC noted that the government would set aside part of its forex reserves for an oil fund in a move to take advantage of the decline in prices and avoid an oversupply in the domestic market. Additionally, in early Dec of 2008, an article in the Shanghai Securities News noted that China was seeking to build up a reserve of 12M tons by 2010 vs. 2-3M tons currently. In terms of oil supplies related news, OPEC's President said that the cartel is seeking “solidarity” from non-OPEC members in order to increase oil prices. These comments came as Russia's oil exports and production both increased in Feb on a m/m basis. Looking ahead, the weekly US Department of Energy inventories report will be released later on today. According to 1 survey during the prior week, oil supplies rose by 1M barrels, gasoline inventories declined by 750K barrels and distillate supplies declined by 1.35M barrels. The recently released API data showed that during the prior week, crude stocks unexpectedly declined. The report also showed that gasoline and distillate supplies were higher than expected (API CRUDE: -460K V +1ME; GASOLINE: -642K V -750KE; DISTILLATE: +1.64M V -1.3ME). Spot Gold is currently declining and is lower for the 8th consecutive session. During the US session, gold prices closed down by more than $25, despite the losses in US equities. Gold has continued to decline after the metal closed below the $930 level earlier during the week. Additionally, recent data has shown than India's demand for gold has been declining, while the SPDR Gold Trust ETF's holdings of the metal have held steady at record levels for the 4th consecutive session.
