Asian Market Update: Australia's home loans disappoint after RBA as media commentary shows concern over impact of tightening; Fed's Hoenig sees funds rate at 2% as easy


ECONOMIC DATA

- (AU) Australia Sept AiG Performance of Construction Index: 50.8 v 42.4 prior (first expansion since Feb 2008)

- (UK) UK Sept Nationwide Consumer Confidence: 71 v 68e (highest level since April 2008)

- (UK) UK Sept BRC Shop Price Index y/y: -0.1% v -0.1% prior

- (JP) Japan Sept Official Reserve Assets: $1.05T v $1.04T prior (record high)

- (AU) Australia Aug Home Loans: -0.6% v -0.5%e; Investment Lending: 7.6% v -4.0% prior; Value of loans: -1.7% v -1.8% prior

- (JP) Japan Aug Prelim Leading Index: 83.3 v 83.3e; Coincident Index: 91.4 v 91.2e


SPEAKERS/PRESS

- Asian equity markets are tracking another strong session in the US, where the Dow put in a second consecutive triple-digit rally ahead of its first component Alcoa unofficially kicking off the start of the earnings season. With two hours to go in Tokyo, Nikkei225 picked up another 1%, retracing the recent declines that saw the index fall to 3-month low.
S&P/ASX is leading the rally with a 2.3% gain in the wake of upbeat central bank assessment of the economy after yesterday's rate hike. Taiwan is up 0.5%, and Korea's Kospi is underperforming for 2nd consecutive session, trading around unchanged as FX authorities continue to keep KRW from rising too fast and concerns over BOK tightening rates as well come to the fore. Ahead of the Wednesday open, front-month S&P's are up 0.3% above 1,052.

- As markets continue to digest the implications of RBA becoming the first G20 central bank to tighten rates, commentary in the press locally as well as abroad painted a rather mixed picture of conditions. The Australian cited concerns expressed by several small business owners, noting that while 3.25% target rate would not impact conditions materially, the hike opening the door to a tightening cycle was seen as troubling. The Age also chimed in on the neglected deterioration in Australia's trade deficit that saw signs of softness in the export space, particularly the decline in China demand falling 17% m/m to A$3.3B from A$3.7B prior. A WSJ opinion peace also reflected on the decision possibly being driven by the runaway asset prices, particularly in the asset sector. Australia's monthly labor data expected tomorrow may solidify perceptions of a timely tightening. In the mean time, Sydney Morning Herald has mentioned a persisting rate of high unemployment among Australia's youth, with only 25% of early-20's demographic working or studying full time.

- Kansas City Fed President Hoenig followed yesterday's dovish statements from Fisher and Dudley with a more action-inclined view. Most notably, Hoenig said the Fed would be able to raise rates several times before policy would become too tight, with a Fed funds rate as high as 2% still being an easy policy level. Urging policymakers to raise rates "sooner rather than later", Hoenig noted that there were no signs to suggest the economy is not recovering, while pointing to the impact of substantial fiscal stimulus preventing a double-dip recession.


EQUITIES

- In equities, several Japanese telecom names reported continued monthly growth in mobile users for September. Softbank added 108K users v 115K m/m, KDDI added 102K users v 78K m/m, and NTT Docomo added 66K users v 113K prior.
 Brokerage upgrades from Citi and Barclays also lifted shares of Daihatsu and Nikon by 3% and 4% respectively. Among the decliners, consumer name Aeon was down nearly 2% after posting a wider than expected first-half net loss of ¥15B on lower than anticipated revenue of ¥2.53T v ¥2.55Te.

- Outside the Nikkei, Australia's gold producers and miners traded higher as precious metals and materials rallied amid overall market risk appetite. Newcrest Mining picked up over 6% on all-time gold highs, while Rio Tinto and BHP were up over 3%. The rally was even more extended in the case of Fortescue Mining which had reportedly received exploration rights in New Zealand. Also in materials sector, Iluka said its H2 sales were expected to be in line with estimates. In Korea, a press report saw Samsung Electronics targeting 2010 LED TV sales of 10M, 5 times the number expected in 2009. In Taiwan tech, local press suggested that Mediatek sales would rise to record high in the quarter, exceeding T$35B on strong chip shipments.


CURRENCIES/COMMODITIES 

- In currencies, European majors and Japanese Yen consolidated their US-session gains against the greenback that ensued in the wake of yesterday's Independent story questioning further use of the dollar by oil producers. EUR/USD fell back below 1.47, GBP/USD retained its weaker tone approaching intraday lows below 1.59, and USD/JPY found some selling pressure after a brief bounce above 89.00. In commodity FX, AUD had paused its rally around 0.89 vs USD, NZD/USD traded sideways around 0.7350, and USD/CAD remained weak after hitting 2009 lows around 1.0550.

- Spot Gold prices are lower by more than 0.30% in Asia on profit-taking. During the US session, the weakness in the US dollar and fund buying helped push gold prices to a fresh record high of $1,043.78/oz. In terms of fund buying, the SPDR Gold Trust ETF noted that its holdings rose by more than 2 metric tons to a total of 1,100.5 metric tons as of Oct 6. Crude oil prices are higher by more than 0.50% and trading above $71/bbl.

- Oil prices received support from the US session's weakness in the US dollar and the earlier released API weekly inventories data (API PETROLEUM INVENTORIES: CRUDE: -250K V +2ME; GASOLINE: +540K V +1.2ME). Looking ahead, energy markets may receive additional direction from the weekly US Department of Energy's inventories data, which will be released later today. In oil related corporate news, oil refiner Sunoco disclosed that it would idle production at its 145K bpd Eagle Point New Jersey refinery due to weak demand. Today's Wall Street Journal reported that Royal Dutch Shell is planning to raise its North American natural gas production on the belief that prices will recover in the long term.

- In other commodities, LME copper prices are declining for the first time in 3 sessions on profit-taking and a rise in inventories. In iron ore news, Goldman Sachs has increased its 2010/11 iron ore fines price forecast to $72/ton from $66 on the expectation of higher global steel production. In other iron ore news, it was reported that in Sept iron ore shipments to China from Australia's Port Hedland declined by more than 4% m/m to 9.4M tons. In copper news, workers at BHP's Spence copper mine in Chile (annual capacity of 200K tons) have rejected the company's latest pay offer and the workers may begin a strike by as early as Oct 8. A separate report noted that BHP closed its South Australian Olympic Dam mine after the haulage system was damaged. It was not disclosed if the incident at the Olympic Dam mine would impact production. During the prior fiscal year, Olympic Dam produced 182K metric tons of copper cathode and 108K ounces of gold.