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Reserve Bank of Australia hikes rates by 25bps for second consecutive month

Tue, Nov 3 2009, 06:41 GMT
by Trade The News Staff

TradeTheNews.com

Asian Market Update: Reserve Bank of Australia hikes rates by 25bps for second consecutive month, but AUD falls on tempered tightening outlook for December

ECONOMIC DATA

- (KS) South Korea Oct fx reserves $264.2B v $254.3B prior

- (NZ) New Zealand Q3 Avg Hourly Earnings (q/q): 1.7% v 0.5%e; Q3 Private Wages Including Overtime (q/q): 0.4% v 0.3%e; Excluding Overtime (q/q): 0.4% v 0.3%e

- (NZ) New Zealand Oct ANZ Commodity Price: 4.6% v 6.8% prior (first decline in 4 months)

- (AU) Reserve Bank of Australia raises cash rate by 25bps to 3.50% as expected

SPEAKERS/PRESS

- Asian equity markets are tracking the ambivalence seen in the US session, where investors pared Friday's steep selloff with a moderate rally on strong ISM and housing data. S&P/ASX and Korea's Kospi are down a marginal 0.2%, Taiwan's Taiex is around unchanged, and Shanghai Composite is up firmly for the second consecutive day, rising nearly 1%.
Nikkei225 is closed for bank holiday after falling 2.3% to 3-week lows in the prior session. Ahead of the Tuesday open in the US, front-month S&Ps see an extension of Monday's gain with a modest 0.1% advance above 1,040.

- Reserve Bank of Australia interest rate decision marked the prime trading event of the session, disappointing the small hawkish minority with a 25bp hike, as expected by the majority of analysts. Ahead of the decision, Aussie Group Chairman John Symond and other business leaders also urged the central bank to take small steps in rate tightening so as not to choke off economic recovery. In the accompanying statement, RBA largely reiterated its outlook on the economy, inflation, and employment attributed to the initial withdrawal of accommodation last month. Specifically, policymakers noted that the risk of serious contraction in the economy has passed, inflation was likely to return to target dampened by rising AUD, and the jobless rate would peak at lower than expected levels. RBA commentary further tempered rate hike outlook for December as well as the possibility of more aggressive tightening overall, noting it is prudent to withdraw monetary policy stimulus gradually. Following the decision, 3-yr govt bond futures rose slightly and overnight swaps fell, portending lower chance of another rate hike next month and sparking a selloff in the Aussie dollar.

- In regional speakers, Chinese researcher Wu Qing said policy makers should allow the yuan to rise as soon as possible so as to avoid a loss in FX reserves. A pair of regional research reports also offered forecasts for growth in the current and next fiscal years. China Construction Bank analysts said Q4 economic growth is likely to exceed 10% and FY09 GDP would reach 8.3%. State Council's Development Research Center analyst saw 2010 GDP around 9.5%. China Steel Association (CISA) reaffirmed its cautious bias on iron ore demand, stating that no large change in the domestic steel export decline or import growth was expected in Q4, calling for prices to decline further due to rising inventories. Elsewhere, Singapore PM Lee noted that global economic outlook is still uncertain and a dramatic rebound was unlikely, but did not anticipate another dip in local economy.

EQUITIES

- In equity specific developments, Japanese press said Mitsubishi Materials may post a wider than expected FY pretax loss on lower demand for cement and carbide tools. In Korea, KT Corp beat Q3 estimates by a wide margin on top and bottom line, reporting Net KRW351B v KRW270Be, Op Profit KRW413B v KRW413Be, on Rev KRW4.8T v KRW4.4Te. Korea Electric Power posted mixed results, with Q3 Net KRW931B v KRW1.1Te, Op Profit KRW1.6T v KRW1.5Te, Rev KRW9.3T v KRW9.2Te. A pair of regional press reports offered mixed outlook for the flat panel industry. In Korea, Economic Daily said the government would permit Samsung and LG Display build factories in China for production of LCDs, while in Taiwan, AU Optronics Corp and Chi Mei Optoelectronics Corp were speculated to reduce production in the coming few months due to slower sales expectations.

CURRENCIES/FIXED INCOME/COMMODITIES

- In currencies, the greenback traded predominantly sideways against European majors, ranging slightly below 1.48 vs EUR and 1.64 vs GBP. AUD/USD fell from 0.9090 to near 0.90 handle in the wake of the RBA decision. Elsewhere in commodity FX, USD/CAD was flat in 1.0760-80 range, and NZD/USD recovered above 0.72 after US-session selloff. Japanese Yen was also relatively unchanged, with thin holiday Tokyo trading keeping USD/JPY contained to 90.20-90.50.

- Crude oil prices are trading near $78/bbl. During yesterday's NYMEX session, crude gained more than 1.4%, supported by the US ISM manufacturing and construction spending data. Looking ahead, later today the US' weekly API weekly inventories data will be released. Spot Gold is higher by more than 0.10% and trading above $1,060/oz. Earlier during the session, the IMF disclosed that it sold approximately 202 tons of gold to the Reserve Bank of India. The gold sale was worth about $6.7B and they occurred over 2 weeks in Oct. The IMF's gold sale was part of the earlier disclosed plan by the organization to sell 403.3 tons. Following the IMF news, India's front month gold futures moved to an all time high of INR16,248/gram. In other commodities, Shanghai Copper prices have risen by over 0.10%, supported by the gains in Chinese equities and earlier released US manufacturing data.

Published on  Tue, Nov 3 2009, 06:45 GMT