Asia markets follow Europe s lead lower Australian central bank holds off on interest rate

Asian markets were lower today but losses were not as large as some had expected. The MSCI Asia Pacific Index fell 1.8% in late afternoon Tokyo trading while the Euro Stoxx 50 Index futures decreased 1.2%. Standard & Poor’s 500 Index futures lost 2.2%, while Treasury 10-year yields reached a low of 1.9%.

Australian corporate news were extremely quiet with all eyes on the Reserve Bank of Australia’s announcement this afternoon. The decision to leave rates on hold at 4.75% reaffirms the central bank’s neutral bias which we don’t think is set to change anytime soon.

The RBA’s statement did however have a slight change in tone, giving equal weight to offshore growth issues while again acknowledging Australia’s medium term inflationary pressures. Previous comments have had a bias towards domestic inflation but the considerations now seem balanced. We still don’t think the Reserve Bank will cut rates to the degree implied by the bond market, underscoring some short term momentum for the A$/US$, comfortably back above its 20 day moving average of 1.0502.

In metals, we are keeping a close eye on copper which is still trading above US$4/lb despite the gloomy growth outlook. Rio Tintosays it plans to sell its stake in South Africa’s largest copper producer Palabora Mining.

The decision is driven by the depleting mine life which makes other long-life deposits potential takeover targets. Copper stockpiles remain flat on the LME despite the recent market decline and Chinese growth moderating.

The world’s largest producer – Chile – is set to experience more supply disruptions with weather and strikes hitting miners owned by BHP, Codelco and other top 10 producers. Codelco’s CEO Diego Hernandez says the global copper market is headed for its biggest supply deficit in almost seven years with Chile possibly loosing 8% of its total 2011 output forecast.

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