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Asia Market Update

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BOJ reaffirms commitment to easy policy despite end of corporate asset buying

Wed, Nov 4 2009, 07:16 GMT
by Trade The News Staff

TradeTheNews.com

Asian Market Update: World Bank raises China GDP forecast but does not see the need for monetary policy tightening; BOJ reaffirms commitment to easy policy despite end of corporate asset buying; Aussie retail sales disappoint

ECONOMIC DATA

- (AU) Australia Oct AiG Performance of Service Index: 54.3 v 49.3 prior (First expansion in 4 months and highest level since March 2008)

- (JP) Japan Oct Monetary Base: 4.4% v 4.5% prior (9-month low)

- (UK) UK Nationwide Consumer Confidence: 72 v 73e

- (UK) UK Oct BRC Shop Price Index: 0.0% v -0.1% prior

- (AU) Australia Sept Retail Sales M/M: -0.2% v 0.5%e; Q3 Q/Q: -0.4% v -0.5%e (first decline in 5 months)

- (AU) Australia Sept Building Approvals M/M: 2.7% v 2.3%e; Y/Y: 11.7% v 8.2%e (highest level since Jan 2008)

- (HK) Hong Kong Oct PMI: 54.6 v 51.8 prior (3rd consecutive expansion and multi-month high)

- (ID) Central Bank of Indonesia leaves reference rate unchanged at 6.50% as expected

SPEAKERS/PRESS

- Asian equity markets are back in the green on more encouraging economic data out of the US and upgraded emerging market prospects at the World Bank, recovering some of the ground lost in the global selloff over the course of last week. Entering the final hour of trading in Tokyo, Nikkei returned from holiday with a 0.2% gain - similar to the rally seen in Sydney. Korea's Kospi, Taiwan's Taiex, and the Hang Seng are all up about 1.5%, while Shanghai Composite is firmer for the third consecutive day by a more modest 0.7% margin. Ahead of the Fed decision day in the US, front-month S&Ps are also higher, gaining 0.4% above 1,045.

- World Bank lifted its outlook for China GDP for the current year by over 1%, forecasting 8.4% growth vs prior estimate of 7.2%. That level is above the official Chinese target of 8.0% and more in line with recent target views out of Chinese economic research and planning bodies. In 2010, World Bank saw a slightly higher rate of growth at 8.7%, but noted that it was premature to implement a major policy tightening in China. Instead, the World Bank said slower credit growth would likely be a part of China implied tightening that could also include some quantitative measures. World Bank was also notably less concerned by the prospects of asset-bubbles and inflation, noting that overcapacity would tame price pressures, containing 2009 CPI to -0.8% before 2010 expansion by a moderate 2%. Sentiment from some of the aluminum companies in China reported in the local press echoed that assessment, warning against further increase in production due to overcapacity conditions. Overall, World Bank lifted its 2009 East Asia GDP growth forecast to 6.7% from 5.3%, with ex-China developing East Asia economy expected to rise 1.1% in 2009 and 4.5% in 2010.

- Elsewhere in Asia, Bank of Japan Governor Shirakawa noted that despite the confirmed end of corporate asset buying in December, downward price pressure is likely to persist for a long time, keeping easy monetary policy in place. Moreover BOJ head saw the pace of recovery as mild, with corporate activity still remaining low relative to pre-Lehman levels. Earlier in the session, Japan Finance Minister Fujii suggested that additional bonds will need to be issued to cover tax revenue shortfall in 2010. In other regional speakers, South Korea Finance Minister Yoon stated that economic data points to further signs of recovery, while Taiwan Premier Wu denied earlier press speculation of rising taxes on upscale property.

EQUITIES

- In individual equities, Japanese press saw Toyota raising global production for the current year to 7M vehicles from prior estimate of 6.7M units. In other Tokyo auto names, Honda said it planned to grow Chinese dealerships by 100 per year over the next 5 years, while Nissan was rumored to market a low-priced vehicle in the US ahead of its 1H results. In other Nikkei industrials Yamaha Motor posted a 9-month decline of Net loss ¥159B v profit ¥43B y/y, Op loss ¥45B v profit ¥64B y/y, Rev ¥859B v ¥1.1T y/y. Oji Paper was widely in line, reporting H1 Net ¥9B v ¥8Be, Op Profit ¥31.5B v ¥27Be, Rev ¥570.9B v ¥579Be, and Mitsui H1 missed with Op Profit ¥75.5B v ¥90Be, Rev ¥5.4B v ¥5.7Te.

- Outside the Nikkei, Taiwan Semi said it won a ruling against Semiconductor Manufacturing, with US courts supporting its allegation of trade secret infringement. In Korea, LG Electronics was rumored to partner with a US company expanding its home appliance offerings and its share of the US market. Earlier in the session, Westpac Banking beat earnings estimates and boosted its H2 dividend to A$0.60 from A$0.56 prior. Elsewhere in Australia, gold producers rallied as spot metal prices rose to fresh all time highs.

CURRENCIES/FIXED INCOME/COMMODITIES

- In currencies, USD traded in narrow ranges against European and commodity FX before weakening later in the day ahead of the FOMC rate decision. EUR/USD and GBP/USD oscillated around 1.4720 and 1.6420 respectively. AUD traded lower following the disappointing retail sales before paring those losses to return back above 0.90, while NZD ranged around 0.72 after testing 1-month low near 0.71 in the US session. USD/JPY was also trendless, ranging in its 2-day 0.8980-0.9070 band.

- Crude oil prices are lower, after gaining over 1.4% on the NYMEX. Following, the US equity close, API disclosed that weekly crude inventories unexpectedly declined, while gasoline stockpiles rose in line with expectations (API PETROLEUM INVENTORIES: CRUDE: -3.27M V +1.5ME; GASOLINE: +500K V +500KE). The API data comes ahead of the later today release of the US Department of Energy's weekly inventories data. In terms of oil demand, the Wall Street Journal reported that International Energy Agency might make a large cut to its long-term oil demand forecast this week. The lower forecast may be driven by improvements in energy efficiency in developed countries. In early Oct, the IEA's chief economist was quoted as saying that the recent strength in oil prices was not justified by fundamentals. In the IEA"s October monthly report, the agency raised its 2010 oil demand estimate by 350K bpd to 86.1M barrels, citing improvements in the global economy. After consolidating for most of the session, Spot Gold has moved off of its lows and its trading above $1,080/oz. Earlier during the session, Shanghai Gold hit an all-time high of CNY237.59/gram. During yesterday's session, gold moved to a fresh record high of $1,087.90/oz, supported by Indian's purchase of over 200 tons of gold from the IMF, as the move was viewed as a sign of central bank diversification away from the US dollar. In terms of additional physical demand for gold, the SPDR Gold Trust ETF increased its holdings by 4.9 metric tons to a total of 1,108 metric tons. This was the ETF's first increase in its holdings since Oct 7.

- In the press, the WSJ ran an article in the Wednesday edition, which was cautious on the outlook for natural gas prices and producers due to the continued rise of supplies. In New Zealand, Fonterra, the country's largest exporter, said in early Nov average prices for whole milk powder rose by just under 14% m/m, to a 13-month high. The rise in milk prices is seen as significant for New Zealand's economy because it may enable Fonterra to increase its expected payout to domestic farmers, which has implications for GDP. According to some estimates, Fonterra makes up about 7% of New Zealand's GDP.

Published on  Wed, Nov 4 2009, 07:25 GMT