Asian Market Update: Australia's PM Rudd reaffirms tightening RBA bias; China's central bank more concerned with inflation; Treasury's FX report stops short of calling China a manipulator


ECONOMIC DATA

- (KS) S Korea Sept Dept Store Sales: 8.6% v 7.6% prior; Discount store sales: -6.0% v -1.5% prior

- (NZ) New Zealand Sept Non Resident Bond Holdings: 72.1% v 74.5% prior

- (SI) Singapore Sept Electronic Exports Y/Y: -14.4% v -13.5%e; Non-oil domestic Exports M/M: 3.0% v 1.2%e; Y/Y: -7.2% v -7.9%e


SPEAKERS/PRESS

- Asian equity markets are trading modestly lower as investors look to book some profits from this week's sharp rally going into the weekend. In the final hour of trading in Tokyo, the Nikkei is off marginally as financials sector retreats over 1.5%.
Shanghai Composite is leading the decline with a 0.5% drop, while Korea and Australia markets are down 0.4%. Ahead of the Friday US session, front-month S&Ps are slightly up by 0.2% just above $1,091.

- Economic calendar has given the markets little to latch on to on the session, while notable speakers from China and Australia offered more hawkish commentary on monetary policy outlook. People's Bank of China Governor Zhou saw much of the policy attention being paid to inflationary expectations, noting that loose conditions were put in place to deal with the crisis, but timing of the exit merited new consideration. Looking ahead, PBOC chief saw September inflation - on tap for release next week - falling Y/Y but rising on M/M basis. The news is likely to be a welcome development for the US Treasury officials as they continue to express their discomfort with the value of the Yuan. In its semi-annual report, the US Treasury Department stopped short of naming China as a currency manipulator, but did suggest that the Yuan is undervalued based on China's growing reserves and rising current account surplus. Down Under, Australian Prime Minister Rudd reiterated recent RBA rhetoric, noting that interest rates are likely to go higher.

- Elsewhere in the region, Japanese press commented on tax revenues in the current fiscal year coming in below ¥40T, falling short of the expected ¥46T amount which would require Tokyo to issue additional bonds. Responding to concerns over fiscal imbalances, Japan's finance minister Fujii urged efforts to limit bond issuance to below ¥44T in FY2010. Also commenting on the budget, Deputy Prime Minister Kan pledged to focus part of the funds on job creation. Back in China, NDRC warned regarding overcapacity in some 6 sectors, including steel, cement, and wind-power equipment, noting that if it goes unchecked, bankruptcies and unemployment will rise. China's Steel industry Association also saw a decline in domestic steel output on overcapacity, but called for consumption to rise about 26% y/y as inventories continue to rise.
Over in Thailand, Finance Minister Korn looked to soothe concerns over the prior session's steep equity market decline, stating that no irregular trading activity was detected.


EQUITIES

- In individual equities, Sony traded higher after an upgrade at Citi to a Buy. In notable decliners, Japan Airlines remained offered on "alternative resolution concerns" discussed by the government for much of this week. Japanese press also saw Takeda Pharmaceuticals and shippers Nippon Yusen and Kawasaki Kisen likely missing first half earnings forecasts. In Taiwan, TSM was said to be mulling reinstating employee salary raises next year, a move likely to be followed by other chip companies on the island. In Australia, the IMF said the banks will likely be able to absorb potential defaults related to the credit crisis.


CURRENCIES/FIXED INCOME/COMMODITIES

- In currencies, Sterling shorts remained on the defensive as markets recalibrate their assessment of BOE policy. GBP/USD rose as high as 1.64 and EUR/GBP fell below 0.9120. In other European majors, the greenback was slightly firmer, with EUR/USD retreating below 1.4920 and USD/CHF rising to 1.0160. Commodity FX had also retreated from the early session rally - AUD/USD pulled back to unchanged levels around 0.9210 and USD/CAD retested US-session high above 1.0340.
Greenback was also stronger against the Yen, hitting fresh 3-week highs just below 91.00.

- Crude oil prices are higher by more than 0.30% and have traded near $78/bbl for most of the session. Oil prices are set to close the week higher by more than 7% on the gains in equities and weaker dollar. Spot Gold has moved off of its best levels and as of the time of writing trading below $1,050/oz. Gold prices have tracked the decline In the EUR/USD currency pair. In terms of physical demand for gold, there have been reports noting that demand during India's Diwali festivals could be tepid due to the recent move in gold prices to record levels. Additionally, the SPDR Gold Trust ETF has so far not added it its gold holdings this week. Shanghai Copper prices are higher on the session, ahead of the later today release of the Shanghai Futures Exchange 's weekly copper inventories data. According to one estimate, in the week ended 10/16, Shanghai Futures Exchange copper stockpiles are expected to rise by 5,000-6,000 tons.