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Asia Market Update

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Protectionism in China and production caution in Korea

Thu, Nov 5 2009, 07:13 GMT
by Trade The News Staff

TradeTheNews.com

Asian Market Update: Equities retreat despite accommodative Fed after 9-year jobless high in New Zealand, rising trade deficit in Australia, protectionism in China and production caution in Korea

ECONOMIC DATA

- (NZ) New Zealand Q3 Unemployment Rate: 6.5% V 6.4%E (9-yr high); Employment Change Q/Q: -0.8% V -0.3%E; Y/Y: -1.8% v -1.3%e

- (AU) Australia Sept Trade Balance: -A$1.85B v -A$2.15Be (biggest deficit since Mar 2008)

- (PH) Philippine Oct CPI M/M: 0.6% v 0.4%e; Y/Y: 1.6% v 1.6%e

- (RU) Russia Oct Services PMI: 54.3 v 53.0 prior

SPEAKERS/PRESS

- Asian equity markets are back in the red after a session of solid gains yesterday, tracking the profit-taking selloff in US markets in the wake of the Fed decision in spite of its dovish outlook. Nikkei225 has entered the final hour of Tokyo trading down 1%, Korea's Kospi is lower by 1.5%, and S&P/ASX settled lower 0.7%. Hang Seng and Taiwan are outperforming but still lower by under 1%, while Shanghai Composite is the only winning index with another 0.5% rally. Despite another solid result from tech bellwether Cisco, front-month S&Ps point to more weakness in the US on Thursday, trading down 0.4% at $1,043.

- Economic data and statements from regional officials have also generally given markets little to cheer. In New Zealand, Q3 jobless rate rose above the expected 6.4% to 6.5% level - a 9-year high - as job loss also topped estimates. Speaking later in the session, RBNZ Governor Bollard made further attempts to talk down the Kiwi dollar, noting that NZ recovery will be slower than that in Australia. Aussie trade balance data for the month of September was better than expected, but still registered an 18-month high deficit. More concerning, exports to China fell for the second consecutive month, while iron ore exports saw a 3-month low. Speaking later in the session, Australia's Treasurer Swan warned that economic hazards may persist as household incomes and business investment remain weak, while private demand recovery may not yet be sustained. Furthermore, Swan said the rise in AUD presents a challenge for exporters, and reduction in credit is likely to constrain growth.

- In Korea, government officials tempered market optimism, with finance ministry suggesting it would be premature to implement an exit strategy amid ongoing uncertainty that economic recovery can be sustained. Finance Minister Yoon added that the economy is too dependent on external demand, noting that October factory production has most likely slowed. In Japan, the minutes from central bank's first October policy meeting expressed the need to maintain accommodative conditions, as smaller firms continued to struggle with credit and downward price pressure further weighed on the economy. Over in China, WSJ reported that US and EU filed a formal WTO complaint regarding its steep export tariffs on strategic raw materials used by steel, aluminum, and chemical companies. Later in the session, Australia was rumored to impose a 16% provisional dumping duty on Chinese aluminum extrusions starting on Nov 6th. Several local Chinese officials commented on the prospects for monetary policy. PBOC Assistant Gov said the central bank would stick to "accommodative monetary policy" and also maintain appropriate liquidity in the banking system. According to statement from Chinese Academy of Social Sciences economists, wide-scale inflation was unlikely in 2010, and rates would not go up before the second half of next year.

EQUITIES

- In individual equities, Toyota reported narrower than expected 1H loss and boosted its FY09/10 guidance. Op loss came in at ¥137B v loss ¥254Be on Rev ¥8.4T v ¥8.3Te, while FY09/10 was raised to Net loss ¥200B, Op loss ¥350B, Rev ¥18.0T from prior Net loss ¥450B, Op loss ¥750B, Rev ¥16.8T. In other Nikkei earnings, Sumitomo Realty beat, posting H1 Net ¥32.9B v ¥29Be, Op Profit ¥74.6B v ¥68Be, Rev ¥330B v ¥325Be. In notable tech names, chipmaker Elpida was also positive, reporting H1 Net loss ¥51.6B v loss ¥59Be, Op loss ¥41.5B v loss ¥60Be, Rev ¥168.4B v ¥161Be while raising FY09 CAPEX estimate to ¥60B from ¥40B.

CURRENCIES/FIXED INCOME/COMMODITIES

- In currencies, US dollar and Japanese Yen firmed across the board on session-long risk aversion after initially reacting lower to the dovish FOMC late in US trading. EUR/USD and GBP/USD fell to 1.4820 and 1.6470 respectively, while USD/CHF rose to 1.0190. In commodity FX, AUD/USD fell about 80 pips to 0.9030, NZD/USD dropped below 0.7180 on poor employment data and RBNZ sentiment, while USD/CAD rose to 1.0680. Japanese Yen was also firm after yesterday's selling as USD/JPY fell to 90.30 and EUR/JPY was off by over 100 pips to 133.80.

- Crude oil prices are lower and trading below $80/bbl at the time of writing. Oil has succumbed to profit-taking following the Federal Reserve's interest rate decision. Additionally, the weakness in Asian equities has weighed on oil prices. During the earlier US session, the Department of Energy disclosed that inventories for both crude oil and gasoline unexpectedly declined (DOE CRUDE: -3.9M V +1.5ME; GASOLINE: -290K V +500KE). Spot Gold prices are lower on profit taking and the rebound in the US dollar. However, gold in Shanghai is higher for the 3rd consecutive session. During yesterday's US session, Spot Gold moved to a fresh record high of $1,097.25/oz. In other commodities related news, the Australian government said it plans to impose a 16% duty on imports of Chinese aluminum extrusions as of Nov 6. The move by the government follows complaints by Australian aluminum manufacturer Capral Ltd. China is Australia's largest trading partner.

Published on  Thu, Nov 5 2009, 07:26 GMT