Asian Market Update: AUD/USD falls to 19-month lows following PIMCO forecast of more RBA rate cuts



Economic Data


- (AU) AUSTRALIA Q1 CONSTRUCTION WORK DONE Q/Q: -2.0% V +1.0%E (biggest decline in 5 quarters)


– (AU) AUSTRALIA Q1 CBAHIA HOUSE AFFORDABILITY Y/Y: 3.9% v 5.5% prior


– (AU) AUSTRALIA MAR WESTPAC LEADING INDEX M/M: 0.2% V 0.6% PRIOR (5-month low)


– (JP) JAPAN APR LARGE RETAILERS’ SALES Y/Y: -2.3% V -1.0%E; RETAIL TRADE M/M: 0.7% V 0.2%E; Y/Y: -0.1% V -0.4%E (smallest decline in 4 months)


– (KR) SOUTH KOREA APR CURRENT ACCOUNT: $4.0B V $4.9B PRIOR; GOODS BALANCE: $3.6B V $4.2B PRIOR



Markets Snapshot (as of 03:30 GMT)


– Nikkei225 +0.1%


– S&P/ASX +0.2%


– Kospi +0.7%


– Shanghai Composite +0.5%


– Hang Seng -0.2%


– Jun S&P500 -0.1% at 1,654


– Jun gold +0.7% at $1,388/oz


– Jul crude oil -0.1% at $94.92/brl



Observations/Insights


– Asian equity markets are catching a more definitive bid after a mixed open as investors shift more funds from fixed income into the equities space across the globe. After better than expected US consumer confidence (4-year high) and Case/Shiller house price index (biggest increase since 2006), US indices and key treasury rates hit multimonth highs – most notably the benchmark 10-year yield has broken out of its 8-month-long range, rising above 2.1%. Similarly, 10-year yields in Australia and South Korea are up 9bps and 4bps respectively – the former helped by the forecast out of PIMCO for a lower policy setting by the RBA to help offset slowing resource investment.


– PIMCO forecast for lower rates, as well as disappointing Australia Q1 construction data, are also playing out in the currency market through more pronounced AUD weakness. AUD/USD breached its 2012 lows around $0.9580 to trade as low as $0.9545, AUD/NZD fell below NZ$1.1850 (lowest since 2009), and even AUD/JPY is down about 40 pips below ¥97.80 despite the renewed yen weakness in other pairs. USD/JPY traded up to ¥102.50 going into the BOJ Gov Kuroda address but retreated to ¥102.20 when the Japanese central bank head failed to break any new ground on JGB volatility.



Fixed Income/Commodities


– (AU) Australia MOF (AOFM) sells A$700M in 2027 bonds, avg yield 3.73%; Bid-to-cover 2.45x


– AUD/USD: CBA analyst: AUD may fall below $0.94 in the coming days if quarterly CAPEX data misses expectations – financial press


– (CN) China MOF sells 5-yr bond, avg yield 3.09%


- GLD: SPDR Gold Trust ETF daily holdings fall by 4.0 tons to 1,012.2 ton (lowest since 1,008.8 tons in Feb of 2009)



Speakers/Political/In the Papers


- (CN) IMF First Deputy Managing Director Lipton: Lowers 2013 China GDP forecast to 7.75% from 8% prev Apr forecast, 2014 forecast to 7.75% from 8.2% prev


– (CN) China Iron and Steel Association (CISA) deputy chairman Wang: Jan-Apr steel output increase have boosted inventory levels; predict that steel prices are going to fall more deeply this year.


– (CN) According to research published in The Lancet, H7N9 bird flu virus strain has shown resistance to popular vaccine Tamiflu made by Roche – press


– (NZ) According to New Zealand Institute of Economic Research (NZIER), RBNZ is increasingly concerned over “speculative” rise in Auckland housing – NZ press


– (JP) BOJ Gov Kuroda: stable financial system is important; Global economy has accumulated wisdom from past crisis’s but not yet completely shaken off effects of financial crisis


- (JP) Japan Econ Min Amari has referred to “fiscal rebalancing” as the 4th arrow of Abenomics; Japan must seek fiscal rebalancing to prevent rapid rise in borrowing costs – Nikkei News


– (KR) Bank of Korea (BOK) gov Kim: policy aims to boost corporate spending



Equities


– WOR.AU: Extended current “Maintain Potential Programme (MPP)” contract with Saudi Aramco for two years


– BHP.AU: Exec: Coal business is aiming to substantially increase free cash flow


– WES.AU: Sees challenging short-term outlook for resources with subdued demand and competitive market


– FCG.NZ: Announces opening forecast for Farmgate Milk Price in FY13/14 milk at NZ$7.00/kgms; Confirms final FY12/13 payout at NZ$5.80/kg


- AAPL: CEO: iPad is growing significantly; Apple has several more game changers in development; Stock price has been frustrating but it is not unprecedented; No major acquisitions in the pipeline; “Wrist technology” more intriguing than eyewear – AllThingsD interview