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Asia Market Update

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Bank of Japan upgrades view on economy, sending JGB yields higher

Fri, Nov 20 2009, 07:58 GMT
by Trade The News Staff

TradeTheNews.com

Asian Market Update: Bank of Japan upgrades view on economy, sending JGB yields higher; PBOC governor notes manufacturing overcapacity, not concerned over USD levels

ECONOMIC DATA

- (NZ) New Zealand Oct Credit Card spending M/M: 0.2% v -1.0% prior; Y/Y: -0.4% v -2.3% prior

- (TH) Thailand Oct Trade Balance: $1.8B v $1.5B; Exports: -3.0% v -5.0%e; Imports: -17.5% v -16.5%e

- (JP) Bank of Japan leaves interest rates unchanged at 0.10%

SPEAKERS/PRESS

- Asian equity markets are trading lower in the final session of the week, tracking the Thursday selloff in the US amid the overall rise of risk aversion across all asset classes. Headed into Tokyo close, Nikkei225 and Taiwan's Taiex are down about 1%, S&P/ASX is at the forefront of the selloff with a 1.3% slide, while Korea's Kospi is higher than its peers, as it has been for much of the week, gaining 0.2%. Ahead of the Friday US session, front-month S&Ps have shrugged the disappointing Dell earnings weighing on the tech sector already reeling from an Intel downgrade, trading unchanged at 1,093.

- As expected, Bank of Japan left interest rates unchanged at 0.1% but surprisingly continued to upgrade its assessment on the economy in spite of the recent disappointments from consumer confidence, manuf activity, and tertiary industry data.
In a unanimous decision, BOJ said the decline in core consumer prices is likely to keep narrowing, exports and production to continue improving, and CAPEX cuts in the business sector nearing bottom. JGB yields rose in the wake of the central bank decision, cheering the positive assessment at a time when many have questioned the timing of the BOJ decision to pull out from its asset buying program. With the latest move, Japan's central bank is also likely to have widened the rift with the new administration, whose vocal outlook has been significantly more cautious. Ahead of the central bank decision, Fin Min Fujii said that rising yields could defeat the purpose of government action to ease funding for small companies and urged policymakers to keep price trends in mind when managing economy. A more vocal critic, Deputy Prime Minister Kan said he planned to take additional steps to communicate to the Bank of Japan that the nation is in deflation. Subsequently, Japan November Cabinet Monthly Report officially declared the economy in deflation, the first time it did so since 2006.

- Over in China, cautious commentary from PBOC Governor Zhou and former member Wu Xiaoling was also seen weighing on sentiment, extinguishing any hints of an upward bounce in mid-session. Zhou urged vigilance to guard against the return of crisis conditions while also noting about avoiding further overcapacity in some of the manufacturing sectors. Further, Zhou forecasted that fiscal stimulus would last about 2 year, with moderately loose monetary policy and expansionary fiscal policy maintained in the near term. Regarding FX, Zhou said that China has not abandoned plans to make yuan convertible, but current crisis has paused yuan convertibility plan. Regarding China reserves and USD, Zhou noted that there was no explicit target for reserve levels, and did not see the need to target specific USD levels. Separately, former PBoC official Wu Xiaoling said China may raise its reserve requirement ratio in 2010, but saw no signs of inflation in the near term.

- Stateside, three separate Fed speakers reflected on the overall slack in recovery. Fed's Fisher saw "enormous excess capacity" with no inflationary pressures and rising debt levels. Fisher also forecasted that Q3 GDP growth would be revised lower and for unemployment to remain above 10% for some time. Likewise, Fed's Bullard said he was losing faith in US jobs growth by the end of 2009. Fed's Plosser was also dovish, stating it was not the right time for the Fed to raise interest rates.

EQUITIES

- In individual equities, capital raise from Tokyo financials continued to weigh on the sector in the wage of Mitsubishi UFJ announcement this week, with Sumitomo announcing plans to sell up to ¥200B in bonds. Elsewhere in Japan, President of Tokyo Electron said the company may post an operating profit in Q4 for the first time in 6 quarters. In Taiwan, the Chairman of Acer announced plans to set up an R&D center on mainland China focusing on desktop computers and smartphones, and China Airlines said it was considering a NT$9B capital raise next year.

CURRENCIES/FIXED INCOME/COMMODITIES

- In currencies, European and commodity majors pared initial selling against the dollar, with the grips of risk aversion easing in latter part of the session. EUR/USD rose above 1.4930, Sterling downside was contained at 1.66, and USD/CHF retreated below 1.0130. In commodity FX, AUD/USD found consistent bids around 0.9150 and NZD/USD bounced back above 0.73 level. Japanese Yen was moderately firmer despite the bid in risk majors, with USD/JPY falling to 88.70.

- Crude oil prices are gaining and trading above $77.50/bbl. During yesterday's US session oil prices declined over 2% on the drop in equities and rebound in the US dollar. Spot Gold prices are little changed and have swung between both gains and losses on the session. In the NY COMEX session, gold prices rose above $1,150/oz, but ended the session lower. In terms of silver, an executive at GFMS Metals Consulting said prices could move above $20/oz, driven by increased investment demand. Earlier today, the iShares Silver ETF said its daily holdings rose by 95 tons to a new record 9,116 tons, after the fund's holdings increased by 67 tons in the prior session. Shanghai Copper prices are higher, ahead of the later today release of the Shanghai Futures Exchange's weekly inventories data.

Published on  Fri, Nov 20 2009, 07:58 GMT