Asian Market Update June 9, 2010 7:05am CST

Australia defends mining tax as China considers pullout from A$3B project; Late leak of strong China exports data revive risk trade

ECONOMIC DATA
- (KS) SOUTH KOREA MAY UNEMPLOYMENT RATE: 3.2% V 3.7% PRIOR (lowest level since Oct 2008)
- (UK) UK MAY BRC MAY SHOP PRICE INDEX: 1.8% V 2.0% PRIOR
- (JP) JAPAN APR MACHINE ORDERS M/M: 4.0% V 1.7%E; Y/Y: 9.4% V 7.3%E (highest since Jun 2008)
- (AU) AUSTRALIA JUN WESTPAC CONSUMER CONFIDENCE: -5.7% V -7.0% PRIOR; CONFIDENCE INDEX: 101.9 V 108 PRIOR (1-yr low); Japan Govt raises outlook on Machinery Orders
- (AU) AUSTRALIA APR HOME LOANS M/M: -1.8% V -2.0%E (7-month high); INVESTMENT LENDING: 1.3% V 8.5% PRIOR
- (KS) SOUTH KOREA APR SOUTH KOREA MONEY SUPPLY M2: 9.4% V 9.3% PRIOR; L: 10.1% V 10.7% PRIOR

- Asian equity markets are trading weaker, unimpressed by last-hour rally in the US bluechips, setting the pace for renewed risk aversion in spite of improving economic data. Nikkei225 is the biggest loser by over 1%, at one point hitting the lowest level for the year. Taiwan's Taiex and Korea's Kospi are down about 0.5%, S&P/ASX is down 0.2%, and front-month S&Ps are pointing to a lower Wednesday open with a 0.4% drop. Light economic calendar in the US will be compensated by more commentary from Fed Chairman Bernanke speaking before the Congressional Budget Committee in Washington.

- Economic data was largely positive across the region. Going into tomorrow's Bank of Korea rate decision, unemployment rate fell to lowest level since October 2008. In Japan, the govt raised its assessment of machinery sector after near 2-yr high print in y/y orders. In Australia, m/m home loans also declined by the lowest pace in 7 months.

SPEAKERS/PRESS
- AUSTRALIA: Finance Minister Tanner offered a staunch defense of the proposed super-profit mining tax in response to assault by the mining industry and the press. Specifically, fin min said the tax is justified by govt investment in mining infrastructure while refuting industry claims that Australia's sovereign risk has increased. Tanner said the administration will not be deterred by decline in political approval, but also said there is room for negotiations with industry leaders. Later in the day, PM Rudd said he will meet with Fortescue CEO for further talks. Defensive commentary has done little to relieve pressure by miners, with BHP pointing to Canada's tax policy in being "globally competitive" during announcement of above-estimates potash resource at Canadian Jansen project. Moreover, Chinese Chalco was rumored to consider suspending a A$3B project in Australia's north Queensland because of mining tax impact. On the monetary front, RBA Gov Stevens said the impact of slowdown in Europe will not have large impact on Australia, but may still weigh on global growth. Stevens further saw 4.5% cash target rate as appropriate because of high private lending rates, saw terms of trade returning to multi-year high, and lauded an increase in saving by households as a way to keep inflation subdued and investment activity on the rise.

- CHINA: Monthly economic data on tap for release on Thursday was leaked by a senior govt official who put May exports up about 50% y/y v 30.5% prior, CPI up 3.1% y/y (above govt forecast for 2010 of 3% and prior 2.8% figure), and new loans around CNY630B v CNY774B prior. Speculation saw a late-session boost to risk trade, with attention paid to the strong trade component. Separate report from China Securities Journal also said May electricity output could rise over 20% y/y. Elsewhere, Agricultural Bank of China rejected press speculation it may postpone its $20B IPO because of concern demand may be low. A 5-yr bond offering saw yields rise to 2.53% from 2.38% from prior auction over 2 weeks ago.

- JAPAN: Prime Minister Kan was reported to call for Diet upper house elections as early as July 11th. This is ahead of prior expectations of Jul 25th. Overnight, Fin Min Noda reaffirmed commitment to maintain Govt bond issues at ¥44.3T or lower in the next FY.

- US: Fed's dissenter Hoenig reiterated his view that Fed funds rate should rise to 1.0% by September with signs of stabilizing seen in manufacturing and housing sectors. Hoenig noted rate hikes would represent normalization rather than tightening of policy.

EQUITIES
- In individual names, Australia's Healthscope said US name Tenet Healthcare dropped out of the bidding, but due diligence by remaining two suitors is going well. Also in Australian press, Credit Suisse said regulator ACCC will face further pressure not to allow NAB's A$14B bid for Axa Asia unit because of ongoing business relationship between seller and buyer when NAB's North investment platform sale is leased back to the company. In the auto sector, China strike at a new Honda plant surfacing yesterday remained unresolved, while Hyundai resolved its labor dispute with workers in India. Japanese press said Nissan received over 6K advance orders for Leaf electric vehicle expected to be released in Japan in December and US/Europe by April 2011 - meeting its initial production target.

CURRENCIES/FIXED INCOME/COMMODITIES
- In currencies, European and commodity majors traded lower before the leak of select China May economic data. EUR/USD traded back to unchanged levels above 1.1960, GBP/USD rallied above 1.4450, and AUD/USD was up 0.8250. Ahead of tomorrow's RBNZ decision expected to join central banks of other commodity-driven economies Australia and Canada, NZD/USD bounced from 0.6610 to 0.6650. Japanese Yen against the greenback was thin, with USD/JPY range-bound around 91.30-60.

- In commodities, front-month crude rallied from $72.00/brl session low to $72.70 after speculation of strong China exports. Overnight API saw another week of strong demand in inventory draw of CRUDE: -4.54M V -1ME. Spot Gold, briefly rising to record high above $1,250 in US session was back below $1,240 in Asian hours, just as SPDR Gold Trust ETF holdings rose by 12.2 metric tons to a record 1,298.5 metric tons.