Major Banks Cut Their China Outlook

(SG) SINGAPORE MAY INDUSTRIAL PRODUCTION M/M: 1.8% V 2.6%E; Y/Y: 6.6% V 6.1%E

(CN) China State Administration of Foreign Exchange (SAFE): China end-Mar outstanding foreign debt at $751.3B v $697.2B end-Dec

(CN) CHINA MAY CONFERENCE BOARD LEADING ECONOMIC INDEX M/M: 1.1% V 0.9% PRIOR (4-month high)

(PH) PHILIPPINES APR TRADE BALANCE: -$135M V -$1.05B PRIOR

(JP) JAPAN MAY CORPORATE SERVICE PRICE INDEX Y/Y: 0.1% V 0.3%E

(KR) SOUTH KOREA JUN CONSUMER CONFIDENCE: 101 V 105 PRIOR (first decline in 5 months)

Markets Snapshot (as of 04:30GMT)

Nikkei225 -1.3%

S&P/ASX -0.5%

Kospi -0.2%

Taiwan's Taiex -0.5%

Singapore Straits Times Index -0.3%

Shanghai Composite -0.5%

Hang Seng unchanged

Sept S&P Futures +0.1% at 1,308

Aug gold -0.3% at $1,584/oz

Aug Crude oil -0.4% at $78.92/brl

Overview/Top Headlines

Asian equity markets started the session modestly lower before heading towards their session lows later on. Japan's Nikkei225 was hardest hit; Japan's lower house was able to pass the increase in sales tax, as expected. Moody's announced a 1-4 notch downgrade to Spanish banks. EUR/USD was slightly higher though remained in a 30 pip range. Draft report ahead of EU summit shows that talks will be held about giving the EU the ability to rewrite national budgets for countries that breach their debt/deficit rules. Both Citi and HSBC cut their China GDP forecasts, though Shanghai was only down slightly. China State Information Centre (think tank) said that since Chinese home prices have not fallen to "reasonable levels," the government should not soften property curbing measures, continue to target speculators with taxes. Some speculation that China will not make any changes to property measures until the new government is formed in the Fall. One of the major developers, Cheung Kong Holdings, priced 446 units of The Beaumount in Tseung Kwan O at HK$5,617/sq ft (4.3% below the price of secondary units in the area).

AUD/USD rose about 20 pips in the session. Australia's largest trading partner, China, has expressed concerns about Australia's carbon and mining taxes and that future investment may not be as robust into the country due to the impact. BHP and Rio Tinto fell 1.4 and 0.9% respectively, rare earth producer Lynas was down over 2%.

Corn futures rose over 1.2% after Morgan Stanley released a report that was bullish for December corn due to one of the driest Junes since the late eighties.

Speakers/Geopolitical/In The Press

(JP) Japan Fin Min Azumi: Expects sales tax bill to pass lower house today; upcoming EU summit will be a key milestone.

(AU) RBA's Debelle: Mortgage rate reductions will help people pay down debt faster; employment is growing despite job cut reports.

(JP) Bank of Japan (BoJ) Official Monma: Long-term JGB yields may rise if markets think Japan will not improve its fiscal condition; need to watch regardless of outcome of sales tax.

(NZ) New Zealand Finance Minister English: Graeme Wheeler will be the next RBNZ Gov effective Sept 25th when current Governor Bollard retires at the end of his term.

(CN) China Ministry of Commerce (MOFCOM) Spokesperson Shen: Trade growth is within expected range, growth continues to pick up.

Equities

Renesas Electronics, 6723.JP: Has requested support from major shareholders, will make an announcement on funding with Q1 results.

MQG.AU: Set up agricultural fund to acquire dairy farms in Australia. - AFR

United Rusal, 486.HK: Cuts 2012 forecast for aluminum prices from $2.2-2.4K to $2.1-2.2k.

FMG.AU: An offer for 60M shares (1.9% of shares outstanding) at A$4.90/shr was requested in an all or nothing bid; suspected to be largest shareholder and Chairman Andrew Forrest (currently holds over 31% of shares). - SMH

FXJ.AU: 3 of the companies editors have announced they are resigning, names Sean Aylmer and Darren Goodsir new editor and chief .- SMH

US Equities

APOL: Exec: One University of Phoenix program failed the "gainful employment" test (full results will be released by Department of Education tomorrow); Q4 enrollment expected to be negative, expects new degree positive enrollment sometime in 2013 - conf call; +6.2% after hours.