Asian markets fall for fourth day; Australian CPI numbers lower than expected

<p>Asian stocks were lower, falling for a fourth day but Australia was the exception after inflation data fell well below market expectations, cementing what seems […]</p>

Asian stocks were lower, falling for a fourth day but Australia was the exception after inflation data fell well below market expectations, cementing what seems to be an inevitable rate cut when the Australian Reserve Bank meets next week.

The MSCI Asia Pacific index was 0.3% in later afternoon Tokyo trading.

The Australian dollar fellow below 1.03 US cents on the inflation news to last settle at 1.0260 level. The odds of a 50-basis point cut have firmed to around a one third possibility.

The Euro was flat at around 1.3155 while the Japanese Yen rallied, with the US dollar last trading at 80.87. Gold was flat at around US$1634/oz while copper was last steady at US$3.64/lb.

In Australian corporate news, supermarket owner Wesfarmers reported solid numbers for its Coles business, with comparable sales up 2.7% for the prior quarter. . While most of the attention will be on the actual numbers, how they stake up against estimates, our focus is on a minor note in the Coles numbers which highlights fresh produce deflation of approximately 25% in the third quarter of this financial year.

We haven’t seen deflation of this magnitude in such a large category like fresh produce for some time. Despite this, Coles has managed to post comparable sales growth of 2.7%. The lower prices strategy is working. Coles 2.7% growth compares with Woolworth’s zero growth for the same quarter.

The supermarket pricing war is only likely to intensify and we think both Woolworths and to a lesser extent Coles will have earnings growth pressures in the years to come.

Metcash will be the largest casualty in terms of earnings performance.

In other Asian corporate news, Japan’s Nippon Life said it plans to buy 100 billion yen of foreign stocks in mostly emerging markets over the next financial year. It also called the dollar yen at 75-85 by March 2013, adjusting its investment metrics around that assumption.

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