Asian stocks mostly lower as Italy was downgraded

Asian stocks finished mostly lower after S&P announced they will downgrade Italy’s sovereign rating. The MSCI Asia Pacific Index lost 1.1% in late afternoon Tokyo trading. Italy was cut to A from A+ on concern that weaker growth and a “fragile” government mean the country won’t be able to reduce the euro-region’s second-largest debt load, S&P said. There is more angst within the market ahead of this week’s US Fed meeting. A clear policy picture is needed to get markets excited. 

In Australia, the balancing act between containing medium term inflation and short term global growth disruptions remain the key challenge for the Reserve Bank of Australia (RBA). Monthly minutes were released today, showing the threat of inflation is not yet completely discounted but there is more balance in this set of minutes between inflationary expectations and global growth challenges. 

We still think the RBA will buy more time, keeping rates on hold until a clearer picture emerges. There is no sense of immediacy at all from this statement. There is an admission of worsening job prospects but terms of trade are offsetting any consumption downturn, expected to hit a record in the September quarter. One factor which could emerge as a discussion point in the next meeting is the decline of the Aussie dollar from its highs. The currency position has done some of the RBA’s work in containing imported inflation – the recent decline might see more cost pressures over the next few months. 

In Australian corporate highlights, TPG Telecom (TPM) reported a 40% increase in earnings this morning but their $78.2m number was slightly shy of market estimates of $81.1m. The result at the EBITDA level was actually better than guidance and market. All business divisions delivered an increase in markets. Overall, this was not a bad result, will be interesting to hear comments from management on NBN progress today. 

Department store operators David Jones (DJS) will round out the reporting season tomorrow.