China's Multi-Year Low Q1 GDP Erases Vast Session Gains Across Asian Bourses, as Falling External Demand Eroded Growth; USD, JPY Rebound vs Commodity Majors, Crude Retreats Below $50

A barrage of economic data from China comprised of Q1 GDP and March consumption, production, and inflation figures has sunk the early broad-based advance across Asian bourses that initially tracked a strong final hour finish on Wall St. Investors clung to hints of cautious optimism seen from the Fed Beige Book in US session as it pointed to marginal signs of housing and economic stabilization in some US regions, all despite further concern over tight credit, "sluggish" retail spending, and persisting disinflationary trends. However, worse than expected China GDP dampened optimism, falling short of consensus estimate of 6.2% at 6.1% - slowest growth since Q4 of 1999 - with notable -0.2% downward impact for the export-driven economy seen from the closely monitored trade component. In other released figures, March CPI followed the first decline in 6 years in February with another comparable -1.2% disinflationary number, retail sales were generally in line with estimates, while industrial production beat Y/Y 6.3% growth estimate at 8.3% but was well short of February's 11.0% increase. Nikkei225 swooned all the way toward unchanged levels after trading as high as +3% above 9,000, Kospi gains contracted to below 1% after session best 2.8% rise, and S&P/ASX was up just 0.3% after trading as much as +1.4% earlier. In US index futures, S&Ps reversed 0.7% gains to a 0.4% contraction.

In Tokyo, materials, shippers, and automakers - sectors most influenced by demand from China - joined the perennially weak Nikkei financials in the post-GDP slide. Weakness in the latter was particularly detrimental given earlier press reports of declining inventories seen for Toyota, Honda and Nissan as production cuts finally appeared to make an impact. In other notable developments, shares of NEC Electronics (6723.JP) were halted ahead of the company confirming merger talks with Renesas. The move is said to potentially create the largest chipmaker entity in Japan. In Sydney, investors in mining shares were also predictably displeased by the meager China growth. Rio Tinto and BHP fell into negative territory after the release, with the latter also hurt by press speculation of agreement to 70% cut in quarterly manganese contract prices. Elsewhere, OneSteel (OST.AU) was halted ahead of poor FY09 company guidance that cut operating profit view to A$200M v A$647Me (prior A$325M-A$375M). OneSteel also announced plans to raise at least 25% in secondary equity at A$1.80/share - a 30% discount to settlement price.

In secondary Asian news on the session, Treasury Currency Report declined to label China as a currency manipulator - a politically timely and sensitive move given the recent currency and trade related friction - particularly as falling China exports diminish its ammunition to sustain purchases of US debt. Thailand IDR rating was cut at Fitch, citing "deterioration in sovereign creditworthiness associated with the inability of successive governments to resolve disruptive civil unrest". In South Korea, President Lee suggested the domestic economy may be passing the halfway point of down cycle, even as the lagging employment indicators had more room to decline. Malaysian's Central Bank Governor Zeti was once again cautiously hawkish, suggesting that interest rate reductions have been front-loaded. In the prior session, Zeti forecasted improvement in 2nd half of the year as stimulus targeted to sustain domestic growth was worked into the economy.

In currencies, the aftermath of China GDP lifted risk-aversion beneficiaries USD and JPY from their earlier losses. EUR/USD fell 100 pip from its best session levels to 1.3170's, outperforming Sterling returned below 1.5000, and USD/CHF rose to 1.1460's from sub-1.14 lows. Japanese Yen rallied below 99.00 vs USD and 130.50 vs EUR - multi-day low in the latter. Commodity names fell particularly sharply on China demand concerns as AUD retreated to 0.7230's from above 0.73 and USD/CAD bouncing off psychological 1.2000 handle to 1.2060s.

Crude oil prices are higher by more than 0.40%, but moved below $50/bbl following the release of China's weaker than expected GDP figures, as China is the world's second largest importer of oil. During the US session, oil prices closed marginally lower, after the Department of Energy's weekly inventories report showed that crude inventories were higher than expected (DOE CRUDE: +5.67M V +2.1ME). Also during the US session, OPEC revised its 2009 global demand forecast lower by 430K bpd, which was the 8th consecutive monthly forecast reduction. Additionally, OPEC disclosed that in March its compliance rate with its previously announced cuts was 83% vs. 79% m/m. At the time of writing, Spot Gold is lower by more than 0.05%. According to some traders, the gold markets is lacking conviction due to declining investor interest and slowing inflows. Gold is currently showing little reaction to an unconfirmed report in the Indian press, which noted that both India and China want the IMF to sell off its entire $100B of gold reserves in order to raise money to provide assistance to developing countries. The US currently has veto power regarding any IMF gold sales. According to the report, both countries have proposed that the IMF sell its gold in bullion markets over a period of 2-3 years. Today's article follows, the G20 statement released earlier this month in which it was disclosed that the IMF would increase its available funds by selling gold. In the past, some analysts have down played the impact of possible IMF gold sales. A prior Wall Street Journal article disclosed that the potential gold sales were unlikely to impact gold prices as the gold would likely be sold to central banks. However, investor Jim Rogers recently noted that he preferred to invest in oil versus gold, citing the possible IMF sales.

Trade The News Staff
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