Asian Market Update

USD continues to gain ground in quiet session

Forex: With little news to guide currency markets, the USD continued to gain ground against the majors (USD index hit a 6-month high in Asia). AUD/USD opened the Asian session weaker for a 10th consecutive day, with the pair finding some near-term support at 0.8760. USD/JPY upside looks relatively contained for now, with traders hearing rumors of some good sized stops above 110.50 (option protection ahead of that level). For GBP/USD, chartists say that the pair would have to have a solid break above 1.9140 (a pivot point) if the near-term downside pressure is to be eased. GBP/USD dived to a 21 month low, while EUR/USD moved to a 6 month low.

Chinese inflation cools down in July: (CH JULY CPI YOY: 6.3% V 6.5% expected, 7.1% prior) One of the reasons why Chinese prices are stable is that there has been no flooding, a regular feature of the rainy season. 'There's a temptation to read this as a sign that inflation is easing, but in fact inflation pressure is still firm,' said Ben Simpfendorfer at Royal Bank of Scotland. 'Food prices are easing but with the base effect we'd expect CPI to start rising by the end of next year. It's wrong to interpret the headline CPI rate as an indication of inflation conditions more generally. Yesterday's high producer price inflation was a warning that inflation pressures remain.' Chinese stocks extended early losses after the inflation reading, but eventually rebounded.

Survey shows that Australian business conditions at the lowest level in seven years: (AU JULY NAB BUSINESS CONFIDENCE: -9 V -9 prior; CONDITIONS: -5 V 0 prior) 'The key message is that the sharp slowdown in domestic demand continued through July and, more importantly, that the rate of slowing has accelerated,' said Alan Oster, group chief economist at National Australia Bank. 'Unless the RBA successfully loosens the policy stance and does so quickly, 2009 could well develop into a very hard landing,' he added. The survey showed that Australia's capacity utilization dropped to 81.6%, from 82.5% in June. Firms also plan to wind back investment plans, the survey showed.

Japan's July corporate goods price index shows the fastest rise in over 27yrs: (JP JULY DOMESTIC CGPI MOM: 2.0% V 0.8% expected, 0.8% prior; YOY: 7.1% V 5.7% expected, 5.6% prior) It was the highest rise for the index since January 1981 when it jumped by 8.1%, highlighting concerns about Japan's corporate profitability. The export price index, in contract currency terms, rose 4.7% on a y/y basis after rising by 3.6% in June. The import price index, in contract currency terms, rose 34.8% on a y/y basis, buoyed by rising oil prices.

Equities: At 23:59 EDT Japan's Nikkei is -0.48%, the S&P/ASX200 is +0.59%, South Korea's KOSPI is -0.08%, Hong Kong's Hang Seng index is +0.38% and the Shanghai composite index is +0.22%. The S&P500 futures contract lost -0.10% since the U.S. close, last trading at 1,303.80. The Nikkei index dipped all the way down to 13,320, with investors booking profits on recent winners ahead of Wednesday's GDP data. A steady set of results from St. George's Bank supported the S&P/ASX200, but 5,060 capped the upside. Posco Steel dragged on the KOSPI index, while Chinese stocks rebounded from early weakness.

Commodities: Nymex crude oil prices lost -0.54% between 18:00 EDT and 23:57 EDT, last trading at $113.83/bbl. Oil prices have declined for 3 consecutive sessions, and the market continues to ignore the conflict between Georgia and Russia. Spot gold is lower by -1.79%, last trading at $813.50/oz. Shanghai gold and Tokyo platinum are sharply lower (limit down at the time of writing).

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