Asian Market Update: Singapore Q3 GDP back to Y/Y positive, but cautious central bank outlook weighs on SGD; World Steel Association upbeat on 2010 prospects, while CISA warns on overcapacity


ECONOMIC DATA

- (SI) Singapore Q3 Prelim Advance GDP Q/Q: 14.9% v 14.5%e; Y/Y: 0.8% v 0.5%e

- (MA) Malaysia Aug Industrial Production Y/Y: -5.7% v -6.0%e

- (MA) Malaysia Aug Manuf Sales Value Y/Y: -20.1% v -22.4% prior


SPEAKERS/PRESS

- Asian equity markets opened slightly higher but have since pared those early gains to trade moderately lower. Choppy conditions were also attributed to a banking holiday in Tokyo hindering liquidity across the region. Nikkei225 remained closed near its best October level just above the 10,000, while S&P/ASX, Taiex, and Hang Seng were marginally lower. The Kospi is the weakest index with a 0.7% decline on 5% freefall in its energy sector, while Shanghai remains well bid after a week of holidays, rising 0.3% going into midday break. Ahead of the Monday open, front-month S&Ps pared the initial advance as well to trade around unchanged levels, while benchmark yields remain elevated after Friday's rally above 3.35%.

- Preliminary Q3 GDP report and a bi-annual monetary policy statement from Singapore authorities marked the primary economic event for the session. Both the q/q and the y/y numbers beat estimates, with the latter also printing a positive result for the first time since Q2 of 2008. Moreover, Singapore officials raised their 2009 GDP estimates to -2.5% to -2.0% from prior range of -6% to -4%. Although the Straits Times index rallied by just over 0.5%, it was the accompanying cautious commentary from the central bank that called for more attention and was seen as a weight on the Singapore currency. Specifically, monetary authorities said the economy would not be able to sustain the strong pace of expansion seen in Q2-Q3 2009 because of weak demand in Singapore's key export markets. Additionally, overseas investment in IT and overall household spending appetite in the US - two key areas for a more sustainable Singapore recovery - were seen as yet to recover decisively.

- Elsewhere, Australia's Treasurer Swan noted the domestic economy was performing better than initially anticipated in the May budget, which could require a mid-year review and a fiscal policy adjustment. However, Swan also saw the overall operation below capacity, with renewed rise in unemployment amid lackluster private investment conditions. Additionally, Swan reiterated Treasury Secretary Henry's view that weaning the economy off the fiscal stimulus could weigh heavily on 2010 GDP.


EQUITIES

- In individual equities, Australian iron ore miner Fortescue Metal reported that its Sept quarter iron ore mined rose to 10.3M tons from 8.9M q/q, while shipped iron ore rose to 9.5M tons from 7.9M tons. Also, Fortescue said its Sept quarter annualized run rate was 38M tons/year and the company expects the Dec quarter run rate to decline to 35M tons/year. In other ASX materials names, AFR said Yanzhou Coal will need to resubmit its application to FIRB to complete an A$3.5B acquisition of Felix Resources, while BHP was said to be approaching the close of the first round of bidding for Ravensthrope nickel mine. Bluescope Steel echoed OneSteel comments that steel prices are rising off their bottom, even as it lashed out against high AUD value impacting overall export earnings. In ASX financials, National Australia Bank traded lower after Bank of America/Merrill Lynch cut its outlook to Sell from Neutral.

- Although Tokyo was closed for business, Japanese press speculated that the government may consider an alternative dispute resolution for Japan Airlines that may involve a public fund injection as part of restructuring the company's debt. In South Korea, Woori Bank warned that refiners may be susceptible to "earnings shocks" in Q3 due to currency factors and lower margins. Korea Electric Power announced it would raise prices in 2010, targeting KRW85T in sales by 2020 - nearly 3 times the amount of current volumes. In Taiwan tech, Commercial Times said Taiwan Semi was looking to raise its 2009 CAPEX estimates to $2.5-3B from $2.3B, with 2010 investment increased further to $3.5-4B.


CURRENCIES/FIXED INCOME/COMMODITIES

- In currencies, the dollar traded stronger for most of the session across the board before retreating in the latter part of the day. EUR/USD re-tested the downside of 1.47 before stopping just shy of Friday support around 1.4670, while USD/CHF rose as high as 1.0350. Sterling selloff was notably more subdued as GBP/USD traded primarily sideways around 1.5850 and EUR/GBP retreated from 0.93 to mark 0.9280 support. Commodity FX and JPY were hit even harder by the dollar bounce. USD/JPY rose to October high above 90.20, USD/CAD rallied to 1.0450, and AUD/USD pared its recent advance to 0.9020. NZD traded the weakest of the majors, falling nearly a big figure to 0.7250 session low. Earlier released JPMorgan report calling for RBNZ to remain on hold at 2.5% until July before raising rates to 4.0% by end of 2010 contributed to the selloff. Singapore Dollar was also offered in the wake of the cautious outlook by the MAS, with markets disappointed by the absence of clearer-defined timeline to current policy band outlook. USD/SGD traded above 1.40, up over 50 pips following the GDP release and the dovish central bank commentary.

- Crude oil prices are higher by more than 0.50%, but prices have moved off of the session's best levels as the dollar rebounded against the European major currencies. In oil related news, BP reported that on Saturday a heat exchanger leak occurred at a process unit at its 467K bpd Texas City refinery. The report did not disclose whether the incident would impact production. According to the most recent US Lundberg survey, the avg price of regular gasoline declined by 1.6% over the past 2 weeks to $2.48/gallon on weaker demand. Spot Gold prices are off of their best levels and as of the time of writing trading below $1,050/oz on the rebound in the US dollar following Friday's comments from Fed Chairman Bernanke.
Shanghai Copper prices are gaining after the Shanghai Futures Exchange disclosed on Friday that weekly copper inventories declined by close to 7K tons to 89.8K tons.

- In terms of the steel market, the World Steel Association reported that in 2009 global apparent steel use was expected to decline by more than 8% y/y to 1.1B tons, while China's 2009 steel use is seen rising by more than 18.5%. For 2010, the World Steel Association expects global apparent steel demand to rise by 9.2%. Additionally, the World Steel Association said it was unsure if China's steel recovery could persist as demand has been supported by stimulus measures. In other steel news, the CEO of ArcelorMittal was quoted as saying that the pace of steel restocking in the US was picking up and that the worst was now behind the steel industry. In a related story, China's Steel Association was quoted as saying that so far this year, China's iron ore imports exceeded demand by 50M tons. The China steel group added that it believed the spot iron ore price gains have been "speculative."

- In press commodity related press news, the WSJ noted that Chinese officials are concerned that foreign suppliers of commodities might be using China's economic growth to inflate commodity prices. As a result, China might seek to expand its futures markets and the Shanghai Futures Exchange might seek to launch its own crude oil contract, by as early as 2010. Separately the FT reported that the recovery for base metal prices has recently slowed on concerns about demand in the developed world, and whether this could offset any short-term weakness in China's consumption.