In Asia ex-Japan, a rally in Australian banks and Hong Kong developers helped lift stocks higher. Minutes of the Federal Reserve Bank of Australia August meeting fueled speculation that policymakers will not hike rates, rallying banks shares. The minutes also said banks’ loan losses seem to have peaked. In Hong Kong a successful government land sale sent developers higher. In Japan however, stocks remained under pressure on concern about Japanese growth. (See RGE Critical Issue: Japan Stuck in Transition: GDP Growth of 0.4% y/y in Q2).
The MSCI Asia Pacific Index gained 0.2% to 118 led by Australian banks. The MSCI ASIA APEX 50 rose 0.2% to 749.
Asian markets came under pressure early in the trading hours on weaker than expected Japanese GDP growth. The Japanese economy expanded at an annualized 0.4% in Q2, less than the 2.3% economists surveyed by Bloomberg anticipated and sharply down from its 4.4% growth in Q1. Export growth slowed and consumer spending stalled and as a result, GDP grew only 0.1% from Q1, the slowest among the six major economies, thus placing the Chinese economy number two after the U.S. The news sent regional stocks lower and the yen higher. (See RGE Critical Issue: Will Japan Intervene to Weaken the Yen?). Chinese stocks, however, gained after Agribank exercised its greenshoe option to sell 3.34 billion additional shares propelling its IPO to the world’s largest with $22.1 billion.
The MSCI Asia Pacific Index fell 0.1% to 117.77 while the MSCI ASIA APEX 50 gained 0.06% to 746.59.
A drop in U.S. consumer sentiment and downbeat banks earnings took a toll on Asian investor sentiment early in the trading hours. The Reuters/University of Michigan U.S consumer sentiment index, reported on Friday after Asian markets closed, dropped in early July to 66.5 lower than economists anticipated. The Median estimate by economists in the Bloomberg survey was 74. (See RGE CI:U.S. Consumers: Not Yet Showing Optimism). U.S. Banks earnings also disappointed after Citibank reported Q2 profits of US$ 2.7 billion down from US$ 4.3 billion a year ago and Bank of America also reported a 3% drop in profit to US$ 3.1 billion. (See RGE CI:Q2 2010 Bank Earnings: Wall Street Experiences Slowdown). The declines, however, were partially limited by rebounds in Chinese shares and news of M&A activities in Australia. A consortium by TPG and Carlyle outbid KKR in a bidding war for Healthscope, Australia’s 2nd largest private hospital chain.
The MSCI Asia Pacific index fell 0.6% to 116 while the MSCI Asia Pac ex Japan slumped 1% to 390.89. The MSCI Asia Apex 50 declined 0.8% to 722.
After Asian markets closed yesterday the Federal Reserve Board reported a largely flat U.S. industrial output for the month of June. The index was up 0.1% m/m due to a 2.7% gain in the production of utilities. Manufacturing production however fell 0.4% m/m, driven by a 0.7% decline in the manufacturing of non-durables. (See RGE CI: U.S. Industrial Production Softens). Data released today in the U.S. showed CPI ex food and energy up 0.9% y/y in June. Google’s Q2 earnings also dented investor sentiment. The company reported an EPS ex-extraordinary items of US$ 6.45 below analysts’ estimate of US$ 6.52.
The MSCI Asia Pacific index fell 0.7% to 117 while the MSCI Asia Apex 50 declined 0.61% to 727.18.
In Japan, stocks tumbled as astronger yen dragged Japanese exporters lower. The NIKKEI 225 fell 2.86% to 9,686, ending the week 2.4% lower.Sony, with 22% exposure to the U.S., dropped 5% whileFanuc lost 4.9%.
After Asian markets closed yesterday a series of economic releases in the U.S., in Europe and today in China pointed to a softer recovery, which markets chose to ignore in the past few days and instead focused on strong corporate earnings. The U.S. Census Bureau reported a more than expected 0.5% decline in U.S. June retail sales. (See RGE CI: U.S. Retail Sales: Consecutive Declines Reveal Weakening Consumer Spending). U.S. mortgage applications also fell 3%. Minutes from the Fed meetingalso showed board members increasingly concerned over the recovery. The Fed cut its forecast for the year to 3%-3.5% from 3.2%-3.5%. (See RGE CI: FOMC: Signals of Caution, Growth Estimates Revised Lower).
Adding to the pressure, a separate report showed European industrial production in May increased 0.9%, less than the 1.3% growth economists expected. And today, data released in China, showed Chinese GDP growth of 10.3%y/y in Q2, less than the 10.5% expected by economists and the 11.9% in Q1. Industrial production grew at 13.7% y/y versus expectations of 15.1% y/y. Inflation data (both PPI and CPI) came in weaker than expected. (See RGE CI: Chinese Growth Decelerates in Q2: How Much Will it Slow in 2010?).
In contrast to these lackluster releases, BoJ kept its interest rate unchanged at 0.1% and raised its view for the country’s economic growth. The Bank raised its forecast to 2.6% growth this year from 1.8%.
Intel Corp, the world biggest semiconductor manufacturer, reported yesterday Q2 sales of US$10.8 billion, beating analysts’ estimates of US$ 10.3 billion amid increasing global semiconductor capex. Intel also forecasted 66% gross profit margin for the year and Q3 sales of US$11.6 billion, topping expectations of US$10.9 billion.ASML, Europe’s largest semiconductor equipment maker, also reported Q2 net income of EUR 239 million, beating analysts’ estimates of EUR203million. The company raised its full year sales forecast to US$4.8 billion. The strong performance in the technology sector helped lift Asian stocks. Singapore also added to market optimism as it raised this year’s economic growth forecast to 13-15%.
The MSCI Asia Pacific index rose 1.4% to 117.61 while the MSCI Asia Apex 50 gained 1.11% to 739.61.
The Chinese Ministry of Housing and Urban Development reaffirmed its commitment to enforcing policies preventing speculative real-estate investment. Separately, the China Banking Regulatory Commission also said it made no changes to its policies on home loans. Stocks fell on the news reversing yesterday’s gains fueled by speculation China may be relaxing its tightening measures. (See RGE Critical Issue: Chinese Property Regulations: Backing Away from Austerity?).
The MSCI Asia Pacific index fell 0.3% to 115.76 while the MSCI Asia Apex 50 declined 0.61% to 731.
Most Asian stocks fell as concerns over Japan’s ability to cut its debt overshadowed gains in mining and developers.
The Japanese ruling party lost control of the upper house of parliament in yesterday’s election, undermining its efforts to cut public debt as well as Japanese political stability. The Liberal Democrats won 51 seats beating the Democratic Party by 7 seats. (See RGE Critical Issue: DPJ Loses Outright Majority in Japan’s Upper House: What Happens Next?). PM Naoto Kan, the fifth PM in four years, has been losing approval since he took office in June with unpopular suggestions like an increase of the consumption tax. The results of the election helped send Japanese stocks and the MSCI Asia Pac index lower despite the rally in Australian miners and Chinese developers.