Asian Market Update: RBA Minutes cite accelerated inflation, above-trend growth prospects in decision to hike rates; AUD hits fresh 14-month high above 0.93 on hawkish bias, endorsement of strength


ECONOMIC DATA

- (NZ) New Zealand Q2 House Price Index: +1.9% q/q (first rise in 6 quarters) and -3.2% y/

- (AU) Australia Sept Merchandise Imports M/M: +6.0% to A$17.2B

- (JP) Japan Aug Final Leading Index: 83.2 v 83.3 prior; Coincident Index: 91.2 v 91.4 prior


SPEAKERS/PRESS

- Asian equity markets are a mirror opposite of the prior session, when the initial steep decline was softened later in the session. Following blow-out results from tech staples Apple and Texas Instruments in the US afterhours, Asian bourses were lifted sharply higher by the tech sectors in early trading before some slight profit-taking set in. With just over an hour to go in Tokyo, Nikkei225 is up about 1%. Korea's Kospi and the Hang Seng are up over 0.5%, while the S&P/ASX 1.3% rally is leading the way after upbeat central bank meeting minutes in Australia. Ahead of the Tuesday open on Wall St., front-month S&Ps are up a modest 0.3%. Busy pre-market US session will be dominated by earnings from industrials sector, as Caterpillar, Dupont, Lockheed Martin, and UAL get ready to report Q3.

- Reserve Bank of Australia latest meeting minutes shed some light on the central bank decision to become the first G20 monetary body to raise interest rates. The RBA's focus revealed growing concerns over inflation bottoming at much higher level than previously expected and possibly rising again in 2011. Moreover, RBA forecasted economic growth returning to trend in 2010 and possibly rising above-trend levels by 2011. Policymakers also did not appear fazed by the rally in AUD, suggesting the Aussie dollar rise reflects improving market sentiment and may actually help to contain inflation. Following the release of the minutes, RBA cash rate prospects by year-end 2010 reached 5.50%, while AUD/USD hit fresh 14-month highs above 0.93.

- Over in Japan, Finance Minister Fujii warned that it may be too early to implement an exit policy, considering that employment and income situation may still worsen by year-end. Additionally, Japan's administration was seen falling short of tax revenue forecasts, requiring the government to sell ¥50T in bonds rather than ¥44T expected earlier. Japan's Deputy PM Kan warned that FY10 budget would be mindful of the overall economic conditions.

- Ahead of Thursday's Q3 GDP figure from China, local press saw a rising number of analysts forecasting economic growth for the quarter above 9%, better than initially expected because of recent strength in economic data. China's Vice Premier Li echoed that positive sentiment, suggesting that economic growth is rising monthly. Chinese steel industry also continued to show signs of potential overheating, with Baoshan and Wuhan said to be facing regulatory scrutiny to build new plants in southern China. On a related Chinese commodity consumption note, PetroChina said its 9-month performance was better than expected on strong natural gas demand.


EQUITIES 

- In individual equities, Japan Airlines traded firmer once again as government officials continued to deliberate a public fund injection into the airline, with decision on restructuring said to come within the next few days. Komatsu also gained after earlier press speculation that it may post a ¥10B Q3 operating profit. In Japanese auto names, Honda said 2010 domestic production is expected to decline by about 30% from the all-time record to about 900K units, and Toyota said it would expand production in South Korea markets. In Australia, Woolworths saw an improvement in Q1 sales to A$13.4B v A$12.8B y/y.

- Elsewhere, tech names in South Korea and Taiwan also reflected the sector optimism seen in US earnings. On the Kospi, Samsung SDI topped estimates across the board for Q3, posting Net profit of KRW87B v KRW76.3Be on sales of KRW1.35T v KRW1.07Te. On the Taiex, Taiwan Semi was said to be considering an expansion in southern Taiwan before next year, when sales may rise to record levels. Additionally, AU Optronics made a foray into the China market with a joint venture estimated to bring NT$300B in annual sales.


CURRENCIES/FIXED INCOME/COMMODITIES 

- In FX, USD largely consolidated its US-session losses, trading sideways against European majors and paring additional selling vs commodity currencies. EUR/USD backed away from 1.50, USD/CHF rose after testing the downside of 1.01, and GBP/USD mainly hugged the 1.64 handle. After breaching 0.93 on hawkish RBA comments, AUD/USD fell back below 0.9270. USD/CAD was thin in 1.0280-1.03 range ahead of the upcoming Bank of Canada decision. Japanese Yen was firmer across the board, with USD/JPY falling to 90.10 and EUR/JPY retreating below 135 following US-session rally.

- Crude oil prices are higher, after moving to a fresh 1-yr high above $80/bbl. Oil prices continue to benefit from the weaker dollar and gains in equities. As oil prices have breached $80/bbl, today's Financial Times is reporting that there are a large number of crude oil call options with strike prices above $80/bbl. In China, the energy minister Zhang was quoted as saying that the country is planning the second phase of its emergency oil stockpile in Northeast China. Additionally, Zhang said China has a CNY13B exploration fund, of which only 11.5% has been used. In Japan, the world's 3rd largest oil importer, an unconfirmed report noted that the new Japanese government may renege on its promise to cancel the ¥25/liter gasoline tax. Spot Gold prices are higher and trading above $1,060/oz. In other commodities, Shanghai Copper prices have risen to a near 6-week high on the weaker dollar and labor strikes in copper producing countries including Peru and Chile.