Asian Market Update: Bank of Korea stays on Hold at 2.00%, to assess second-half growth before policy changes; USD higher after BOK decision, Bernanke hints of exit from excess liquidity


ECONOMIC DATA

- (NZ) New Zealand Sept Card Spending M/M: 0.7% v 0.2% prior

- (JP) Japan Aug Machine Orders M/M: 0.5% v 2.1%e; Y/Y: -26.5% v -25.4%e (5-month high)

- (KS) Bank of Korea leaves 7-day repo rates unchanged at 2.00% as expected

- (KS) South Korea Sept PPI Y/Y: -2.6% v -3.0% prior


SPEAKERS/PRESS

- Asian equity markets look to finish the week on solid footing, rising across the board following the decision to maintain an accommodative stance at the Bank of Korea, the next in line G20 central bank to consider a rate hike. Korea's Kospi has shrugged the mantle of liquidity drain worries plaguing the index the entire weak, leading the way with a 1.8% gain. With just about 2 hours to go in Tokyo, Nikkei is also well bid by nearly 1.5%, while Shanghai Composite is looking to catch up to this week's regional rally with a 3.8% advance. In Sydney, S&P/ASX is lagging the Asia rally, trading flat as commodities fall on some cautious commentary by Aussie officials. Ahead of the Friday session, front-month S&Ps are also near-flat at 1,064.

- Commentary from the Bank of Korea was far less of a close call than anticipated, suggesting the markets may have gotten caught up in the post-RBA tightening euphoria. Governor Lee saw upward inflation pressures remaining weak and uncertainty reigning over the economy despite the real-estate boom. There, Lee noted that the property market alone does not decide rate policy. Additionally, Lee said the economy appears stronger from the production rather than the demand side, and while Q3 GDP may advance beyond estimates, Q4 would still be weaker. Regarding Australia central bank decision, BOK Governor said the hike is not necessarily indicative of the start of full exit strategy. Aussie officials appeared to echo the caution expressed in Korea. Treasury Secretary Henry said that all of recent growth was the result of the stimulus enacted, forecasting the exit to detract as much as 1.25% from Australia's GDP in 2010. Moreover, despite the upside surprise in Aussie labor data, Henry saw jobless rate continue to rise toward IMF estimates of 7%, putting 2011/12 as the first year of above-trend growth. Elsewhere in Asia, Japanese press said the DPJ administration was planning emergency measures to deal with the unemployment situation.

- Stateside, testimony from Fed Chairman Bernanke was perceived on balance as increasingly more hawkish. Although the Fed chief said accommodative policy is needed for an extended time, he saw tighter policy more warranted as recovery takes hold, suggesting the Fed has many tools to tighten at the appropriate time. Particularly striking were some of the specifics and conditions considered by the Fed Chairman as he pointed to expansionary fiscal policy being taken into account, also stating that higher rates on bank reserves is one of the ways to hike fed funds. Overall, the dollar rallied in the wake of the Bernanke speech while benchmark Treasury yields moved toward 3.27% from 3.25% intraday low.


EQUITIES

- In individual equity movers, Australia's gold-producer Newcrest gained about 3% despite the $10 slide in gold prices after Australian Financial Review said the company may be the target of a hostile bid by Newmont Mining. In Nikkei auto sector, Honda increased its FY09/10 domestic total sales forecast to 655K units from 600K units, and JPMorgan raised its outlook to Overweight for Nissan and cut its outlook to Underweight for Toyota. In other market-moving analyst actions, Nintendo rallied sharply after Citi raised it outlook to Buy from Hold. Elsewhere in Tokyo, Mitsubishi announced a debt raise of ¥120B, while Japanese press saw Toshiba boosting its LCD TV sales to 18M units in FY2011, up 80% increase from projections for FY09.


CURRENCIES/FIXED INCOME/COMMODITIES

- In currencies, broad based USD rally after Bernanke testimony and BOK decision saw EUR fall from 1.48 to 1.47 against the greenback. Sterling briefly tested the downside of 1.60, while USD/CHF rose as high as 1.0320. Traders have also reversed their bullish JPY bets, with USD/JPY rising nearly 100 pips to 89.30, and EUR/JPY and GBP/JPY crosses rising to 131.50 and 143.00 respectively - also triple digit pip gains. In commodity FX, USD strength sent AUD/USD and NZD/USD to 0.9020 and 0.7390 lows.

- Crude oil and gold prices are lower on a combination of comments from the Fed Chairman Bernanke and profit taking, as both commodities have risen sharply this week. Oil prices have declined by more than 0.4%, after gaining more than 2.9% at the close of the NY floor session. Spot Gold prices are lower by more than 0.5%, as the metal moved below $1,050/oz, following comments from the Feds' Bernanke sparking USD strength. During the NY COMEX session, gold prices rose to a fresh record high for the 3rd consecutive session. In terms of physical demand for gold, the SPDR Gold Trust ETF noted that its holdings remained unchanged as of Oct 8 and this is the first time this week that the fund did not increase its holdings. Overall, gold has risen by more than 4% this week on the weaker dollar. In Shanghai, copper prices and most other metals prices are sharply higher, as Chinese metals play catch up to this week's rally in the LME metals.