Asian Market Update: China to expand local FX settlement with Russia in favor of CNY and RUB, reaffirms 8% GDP target for 2009; Kiwi Dollar pares losses after improvement in retail sales


ECONOMIC DATA

- (NZ) New Zealand Aug Retail Sales M/M: 1.1% v 0.5%e (First increase in 3 months and highest level since Nov 2007); Ex-Auto: 1.2% v 0.5%e

- (UK) UK Sept RICS House Price Balance: 22% v 15%e (Second consecutive monthly growth and highest increase since Apr 2007)

- (UK) UK Sept Retail Sales Monitor SSS: 2.8% V -0.1% prior; Total Sales: 4.9% v 2.2% prior (SSS growth biggest since Apr 2009: Total sales growth highest of 2009)

- (JP) Japan Sept Bank Lending Y/Y: 1.6% v 1.7%e; Banks Lending Banks: 1.7% v 1.9% prior; Banks Lending Banks Adj: 2.3% v 2.5% prior

- (JP) Japan Sept Money Stock M2 Y/Y: 3.0% v 2.9%e; M3: 2.2% v 2.1%e

- (AU) Australia Sept NAB Business Conditions: 3 v 4 prior; Confidence: 14 v 18 prior

- (PH) Philippines Aug Prelim Total Exports Y/Y: -21.0% v -20.0%e; Total Exports: $3.47B v $3.31B prior

- (SL) Sri Lanka Central Bank Repo Rate Unchanged at 8.00% v Expected cut of 25bps to 7.75%

- (CH) China Q3 Business Climate Index: 124.4 v 115.9 prior; Entrepreneur Confidence Index: 120.1 v 110.2 prior


SPEAKERS/PRESS

- After a mixed low-volume start to the week's trading over the prior session, Asian equity markets are picking up where they left off the prior week - with a strong rally. Reopening after a banking holiday, Nikkei225 extended its recent bounce beyond 10,100, rising 1% with just about 2 hours left in Tokyo. S&P/ASX is also firmer by just over 1% entering its final hour amid gains in materials. Among the underperformers, Korea's Kospi is down about 0.5% after local press saw North Korea preparing for a short-range missile launch, and the Taiex is around unchanged on speculation that Taiwan may apply a corporate tax on institutional stock trading. Ahead of the post Columbus Day holiday Tuesday US session, front month S&Ps are off their initial lows to trade around unchanged just above 1,071.

- In China, Vice Prime Minister Wang added to demand concerns regarding the global reserve status for US dollar, announcing plans to establish a bilateral currency deal with Russia. In anticipated expansion of local FX settlement, Chinese official said the nations are working on implementation of trade settlement in yuan and rouble rather than the dollar and euro, while also urging Russian financial institutions to set up outlets in China. Separately, vice PM Wang said the economy would be able to meet the official 8% GDP target for 2009, forecasting a more rapid expansion in Q3 and Q4 over the two quarters of the first half. On a related China growth note, local press saw China electricity output rising by over 10% in August, the first double-digit increase in power produced in 16 months.

- In other regional speakers, Japan's Finance Minister Fujii said he has asked economic ministers to dial down their 2010/11 budget requests, expecting next year's FY budget levels below those of this year. Finance Minister in New Zealand extended the administration's verbal intervention against the rise in NZD, calling for higher unemployment despite the rising business and consumer confidence. Earlier in the session, Kiwi dollar was lifted by the highest rate of growth in August retail sales since late 2007. Australia's Treasurer Swan also retained a cautious outlook in the face of the RBA rate hike last week, noting the absence of sustained improvement in private demand weighing on the labor sector. Over in Singapore, Prime Minister Lee also said unemployment is likely to continue rising beyond Q2's 3.3%, forecasting a "modest but positive 2010 growth". Additionally, Lee said the administration would look to extend its current wage subsidies for an extra 6 months albeit by a smaller amount. In Korea, Finance Minister Yoon noted that run-away real-estate price growth showed signs of stabilization in the wake of the recent announcement regarding lending controls


EQUITIES

- In individual equities, Asian steelmakers are trading significantly higher after following Goldman Sachs upgrade for the region's steel industry to "maximum bullish". In Japan, Nippon Steel, Kobe Steel, and JFE Holdings are all trading higher on that positive outlook, while Korea's Posco and Hyundai Steel are also rising on Goldman revision to Buy. In other positive analyst actions translating into robust Nikkei gains, Citi raised Pioneer to Buy, Goldman raised Nikon to Buy, and Merrill raised Asahi Breweries to buy. Elsewhere in Tokyo, shipper Mitsui OSK denied press reports that it may miss prior guidance, posting a FY2010 pretax profit of ¥35B (-83% y/y) on sales of ¥1.4T (-28% y/y). Additionally, Sanyo Electronics was said to increase production capacity at Osaka solar cell plant, installing 4 new production lines by the end 2010.

- Outside Japan, Hynix CEO told MoneyToday the company will meet its operating profit estimates for Q3 when it reports at the end of the month. In Taiwan, Acer said it would recall 5 models of Aspire-series laptops because of overheating problems. In Hong Kong, Steve Wynn said the growth limits on Macau gambling industry imposed today that sank casino stocks in the US session were not particularly concerning. In the US, AIG finalized its $2.2B sale of the Taiwan Nan Shan unit to a group led by Primus Financial.


CURRENCIES/FIXED INCOME/COMMODITIES

- In European FX majors, EUR/USD and USD/CHF traded sideways around 1.4780 and 1.0260 respectively. Sterling remained relatively weak, with GBP/USD falling below 1.5770 and EUR/GBP rising to 0.9370. The yen was also broadly offered for second consecutive session, with USD/JPY finding buying interest around 89.60 to target 90.00. In commodity FX, NZD traded higher across the board after better than expected retail sales. NZD/USD gained about 70 pips after the report before being capped around 0.74, while AUD/NZD fell back to 1.2280 from 1.2370. Against the dollar, the Aussie traded near-flat, ranging around 0.9070.

- Crude oil prices are lower on profit-taking and trading around $73/bbl. During the US session, oil prices rose by more than 2% and closed above $73.20/bbl, as the commodity benefitted from the gains in the Euro against the dollar. Looking ahead, oil prices may receive some direction from upcoming US earnings reports and the weekly API crude inventories data. Spot Gold prices are declining, but have moved off of their worst levels. In other commodities, Shanghai copper prices have declined by more than 0.40%, tracking the earlier declines in the LME copper contract. China's Sept imports of copper and other commodities are expected to be released later during the week.

- In commodity related press reports, the WSJ reported that China is planning to lower taxes on steelmakers currently facing significantly higher tax rates than their counterparts in the US. The Australian Financial Review reported that BHP and Rio Tinto could be each in talks with Indian steelmakers regarding their first ever Indian iron ore supply contracts. In coal news, Australia Newcastle Port's coal export volumes rose by 12.6% during the prior week to 2M tons.