Asian Market Update: Equities in Asia extend Friday Wall St rally; Nikkei shrugs BOJ warning on low rates, erases last week's decline

- Asian equity markets cheered the upbeat sentiment of economic rebound and a commitment to easy money coming from the Jackson Hole global central banker summit, staging a catch-up rally to the bounce in the US where markets were also boosted by strong housing data. Nikkei225 is leading the bullish stampede, erasing last week's 3.4% decline over the course of a single session to trade within 50 points of multi-month highs just above 10,600. Taiex and S&P/ASX are trailing just behind with near-3% rally, while the closely-monitored Shanghai Composite has extended the two-day recovery of the prior week to pick up 0.7%. Those gains are particularly impressive considering press speculation over reclassification of China's sovereign wealth fund assets and an equity offer from a major real estate developer reported over the weekend.
Ahead of the Monday Wall St. open, front-month S&Ps are up 0.5%, while benchmark treasury yields remain firm at 3.58%.

- According to local media, China Investment Corp (CIC) - the country's $200B sovereign wealth fund - has reached an agreement with the Finance Ministry to alter the way it pays its funding costs. The Finance Ministry had issued about $227B in treasury bonds back in late 2007 in order to buy FX securities from the central bank, with CIC assuming about $10B of interest each year. However, because of heavy overseas investment losses, CIC has been postponing its interest payments. According to the new agreement, CIC would treat the $200B as asset rather than debt, paying the state dividends instead of interest under a structure of a "state-owned enterprise". Thankfully, CIC's near-7% ROE recorded this month is said to allow the fund to pay the $10B dividend to its state shareholder. Elsewhere on the mainland, Caijing Magazine reported China Vanke was planning a CNY10B equity offer. Vanke is the country's biggest listed real estate developer, with the share sale expected to dilute its market cap by just over 8%.

- Across-the-board rally in Asia has also defied a fresh serving of pessimism from the widely followed bearish US academic Nouriel Roubini. NYU economist still sees a "big risk" of a double-dip recession amid sub-trend growth, growing budget deficits requiring higher taxes, and potential of higher lending costs to balance out inflationary price trends. Among some of the more notable speakers in Asia, BOJ Gov Shirakawa also expressed concern about a potential inflationary bubble, calling for greater coordination among global central banks in monetary policy while avoiding "financial nationalism" by major economies. Back in China, PBOC adviser Fan Gang said the recovery is progressing at a fast pace, forecasting an 8% GDP growth for 2010 as recovery in exports and corporate investment replaces the impact of this year's fiscal stimulus.

- In equities, Australian miner Rio Tinto and Chinalco took a big step forward from their failed investment tie-up, starting talks of a potential bauxite and alumina cooperation agreement in Queensland. On a related note, some of China's steel industry executives have demanded an overhaul of CISA management in order to resolve the iron ore pricing contract stalemate with Australian miners. China's Sinopec also reported 1H results, earning net profit CNY33.2B v CNY27Be on revenue of CNY534B. In other earnings results, John Fairfax posted FY09 net loss of A$380M v profit A$74Me, and Wesfarmers said no additional government cash handouts to consumers were necessary amid improving consumer confidence.

- Over in Japan, local press said Honda was looking to develop an electric car for the US market by 2015, and NEC was looking to expand sales of its LED lighting products along with Mitsubishi Electric. Kospi's Korean Air said its July cargo volumes increased 13% y/y on rising tech sector exports, while Hong Kong PC maker Lenovo said it planned to build more manufacturing plants in emerging market countries to meet returning demand.

- In currencies, Japanese Yen was heavily sold across the board while risk-related commodity FX pairs were generally firmer. Both USD/JPY and AUD/USD rose to one-week highs, reaching 94.70 and 0.84 respectively. European majors were generally rangebound, with EUR/USD consolidating gains above 1.4320 and GBP/USD trading around 1.65. Swiss franc was notably softer across the board however, with USD/CHF briefly testing 1.06 and EUR/CHF extending its bounce from 1.5130 toward 1.5190.

- Crude oil prices are higher by more than 0.20% and have so far traded as high as $74.35/bbl. Oil prices are tracking the gains in Asian equities and the commodity currencies. On Friday's session, oil prices closed higher by more than 1%, on the gains in US equities and better than expected US existing home-sales data. Additionally Friday's comments from Fed Chairman Bernanke, noting that the global economy is starting to emerge from recession, were seen as supportive to commodities. In China, Sinopec, the country largest refiner, reported a sharp rise in its Q2 profit. Sinopec said that it expects domestic fuel demand to grow steadily in the second half of the year due to stimulus measures by the Chinese government. In Nigeria, rebel group MEND threatened to resume its attacks on the country's oil industry once its cease-fire ends on Sept 15. Spot Gold is little changed at the time of writing, after the metal rose by $13/oz in Friday's NY session. In terms of physical demand for gold, the world's largest gold ETF, SPDR Gold Trust, disclosed that its holding rose by 0.9 tons and for the first time since June 1. Shanghai Copper prices have rallied by as much as its 5% daily limit, tracking the gains in the LME copper contract. On Friday's session, LME copper was supported by the US existing home-sales report.
Additionally, the Shanghai Futures Exchange disclosed that last week copper inventories rose by 7% to 5,543 metric tons.