Asian Market Update: RBA surprises with 25bp hike while Aussie trade balance disappoints; Samsung, Acer issue strong guidance for current quarter; USD lower on fears of reduced demand by oil states


ECONOMIC DATA

- (NZ) New Zealand Q3 NZIER Business Opinion: 36 V -26 PRIOR (10-year high)

- (JP) Japan Aug Loans & Discounts Y/Y: 1.8% v 2.4% prior

- (AU) Australia Aug Trade Balance (AUD): -1.52B v -900Me

- (PH) Philippines Sept CPI M/M: 0.2% v 0.1%e; Y/Y: 0.7% v 0.6%e

- (AU) RBA raises Cash Target rate by 25bps to 3.25% v expected hold at 3.00%


SPEAKERS

- Asian equities are trading firmer across the board following strong recovery in the US markets on the back of an expansionary services ISM. Nikkei225 opened nearly 1% higher before paring back its gains following speculation about the need for an additional supplementary budget in Japan. Australia's S&P/ASX is shrugging the poor trade data, and tighter lending conditions following the surprise RBA hike, rising 0.5%. Taiwan is leading the way with a 1.7% rally on positive outlook for some of the tech names on the Taiex, while Korea's Kospi is the single major regional decliner on concerns the BoK may also be pushed to tighten. Ahead of the Tuesday session, front month S&Ps are around unchanged levels at 1,036.

- Reserve Bank of Australia is the key story of the session, raising interest rates 0.25% to 3.25% despite expectations for a hold. However, as we pointed out in our preview, over half of institutional forecasts for a hold had been made over a month ago before fresh round of hawkish sentiment by Gov Stevens and strong employment data. Moreover, the implied yields tilted the scale in favor of the hike with about a 60% probability of 25bp tightening ahead of the decision. Nonetheless, AUD was significantly stronger after the decision. Specifically, RBA saw private investment conditions stronger than in the past and jobless rate below the feared levels. Australia Treasurer Swan, a recent opponent of the tightening, conceded that low cash rate is still seen as expansionary, with additional rate hikes becoming more likely. The positive RBA assessment of the economy also overshadowed worse than expected trade deficit that saw both import and export components decline m/m.

- Over in Japan, deputy prime minister Kan said the state of the economy does not warrant much optimism, warning that another supplemental budget may be needed to lift labor market. Earlier, Finance Minister Fujii said the government would be able to free up to ¥2.5T from the extra budget in deferred project allocation. Additionally, Japanese press warned the government may need to issue of additional bonds over the next fiscal year to make up for a shortfall in tax revenue. In Korea, Vice Finance Minister Hur said it was too early to withdraw accommodation. Ahead of the Oct 8th Bank of Korea decision, consensus calls for a hold at 2.0%.

- A pair of Fed speakers afterhours offered a fairly dovish outlook in terms of US monetary policy prospects. Richard Fisher saw pressure remaining on the side of deflation, noting the Fed was prepared to exit but now was not the appropriate juncture for it to do so. New York's Bill Dudley called for Fed funds to remain "exceptionally low for extended period", stating the FOMC could instead sell some of the assets held.


EQUITIES

- In equities, tech names in South Korea and Taiwan saw some positive forward looking guidance from key companies as well as analyst upgrades. Samsung Electronics guided Q3 operating profit KRW3.9-4.3T v KRW3.8Te on Sales KRW35-37T v KRW36.6Te. In other Kospi names, LG Electronics was added to Goldman Sachs Conviction Buy list and LG Display was raised to Buy from Neutral at UBS. On the Taiex, Acer saw its revenue growing 10% in Q4 over the prior quarter on rising consumer demand, with company chairman citing rising orders. AU Optronics was also raised to Buy at UBS, while Asustek announced it would enter into a patent cross-license pact with IBM. Over in Tokyo, Cerberus Capital reaffirmed its commitment to Aozora bank holdings, promising not to sell any of its shares in the open market. Elsewhere, Japanese press said Fuji Heavy would partner with Toyota to develop an electric vehicle.


CURRENCIES/COMMODITIES

- In energy/currency-related press news, an article in today's London Independent disclosed that Gulf nations, along with China, Russia, Japan and France, might seek to reduce their reliance on the US dollar for oil transactions and instead use a basket of currencies, which could include yen, yuan, euro and gold. The greenback fell across the board as the Independent report made its way across the major wires, with EUR/USD rising above 1.47, GBP/USD approaching 1.60, and USD/CHF falling to 1.0260. In commodity FX, AUD rallied firmer after the surprise RBA rate hike, reaching 0.8875 against USD, 79.00 vs JPY, and 1.2075 vs NZD after posting an 8-month low in that pair. Earlier, NZD rose above 0.7330 vs USD after 10-year high in NZIER Business Opinion data. Spot Gold prices are higher by more than 0.10% and today's session high is so far $1,020.40/oz. Gold prices are benefiting from the weaker dollar and demand related to India's upcoming Diwali festival. During the NY COMEX session, gold prices rallied by more than $13/oz on the weaker dollar. In terms of physical demand for gold, the SPDR Gold Trust ETF announced that its holdings rose by 1.5 metric tons as of Oct 5 to a total of 1,098 metric tons. LME copper prices are higher on the session. Copper prices have benefited from the gains in the commodity currencies against the dollar and the earlier released US service industries data which exceeded expectations. Crude oil prices have moved between gains and losses throughout the Asian session and have traded near $70/bbl. During the NY floor session, oil prices ended higher by more than 0.5% and above $70/bbl on the gains in US equities and the weaker dollar.