Asian Market Update: South Korea Q3 GDP beats forecast, rises at fastest rate in 7 years; USD falls as PBOC-backed report recommends for China to broaden EUR, JPY reserve diversification


ECONOMIC DATA

- (KS) South Korea Q3 Preliminary Q/Q: 2.9% v 1.9%e (Highest level since Q1 of 2002); Y/Y: 0.6% v -0.3%e (First expansion since Q3 of 2008)

- (AU) Australia Q3 PPI Q/Q: 0.1% V 0.3%E; Y/Y: 0.2% V 0.5%E

- (SI) Singapore Sept Industrial Production M/M: -9.1% v -6.2% expected, Y/Y: -7.7% v 1.0% expected


SPEAKERS/PRESS

- Asian equity markets are opening the final trading week of October on the up note, shrugging the profit-taking selloff in the US on Friday with a near-unanimous rally. Entering the final hour in Tokyo trading, the Kospi is leading the way with a 0.9% gain following much better than expected Q3 GDP report in Korea, while the Nikkei is up 0.6%. In other indices, the Taiex gained 0.5%, Shanghai Composite traded about 0.5% on both sides of prior close, and S&P/ASX is lagging behind with a 0.5% drop. Ahead of the Monday open, front-month S&Ps are also around unchanged at $1,077 after rising as high as $1,080.

- South Korea economy has once again surprised the markets to the upside, posting the biggest Q/Q increase in GDP in over 7 years and the first Y/Y expansion in 12 months. Q3 GDP rose 2.9% Q/Q, topping 1.9% estimates, while Y/Y rose 0.6% v -0.3% expected. South Korea's Finance Minister Yoon commented on the data, stating that although Q3 growth was in fact meaningful - particularly considering the rising currency and oil prices - it was still too early to predict overall economic growth in the current fiscal year. Moreover, Yoon said asset market prices showed signs of stabilization, justifying cautious optimism on the economy, even though it was still too early for the central bank to withdraw its stimulative stance.

- Policymakers in Japan have also maintained a cautious outlook ahead of this week's Bank of Japan decision on tap for early Friday. Ahead of that policy meeting, Japanese press speculated the BOJ would cut expectation for Japan's potential growth rate to below 1% in its semiannual outlook report. Prime Minister Hatoyama was also notably cautious, suggesting that labor conditions in Japan could deteriorate further and the economy may struggle to maintain a sustainable growth rate. Japan jobless rate for the month of September, along with household spending, are expected for release just ahead of the BOJ decision early on Friday.

- Elsewhere in Asia, Chinese Vice President Li noted the economic rebound has become firmer, reaffirming the official 8% growth target for the current fiscal year. Additionally, Li anticipated the monetary officials would maintain an appropriately loose policy, while Vice Finance Minister Wan said China is likely to keep an active fiscal policy.


EQUITIES 

- In individual equities, speculation over survival of Japan Airlines was further boosted by reports of Delta hiring an agency to lobby Japanese government regarding a tie-up with the struggling company. The first of Tokyo steelmakers to report first-half earnings beat on the top and bottom line, posting H1 Net loss ¥28.7B v loss ¥34Be on Rev ¥1.3T v ¥1.3Te, but guided FY results below consensus view. Also reporting in Tokyo, Shin-Etsu was largely in line, with H1 Net ¥36B v ¥35Be on Rev ¥417B v ¥411Be. In China, Sinopec had reportedly discovered a 120B cbc. meter natural gas field in Chongqing - the largest Asian natural gas find. In other materials, Wuhan Iron & Steel said its FY09 profit may decline by more than 50% y/y due to the global recession.


CURRENCIES/FIXED INCOME/COMMODITIES

- In currencies, US dollar briefly weakened to its worst levels since Aug of 2008 against the Euro above 1.5060. Greenback losses were widely seen after PBOC backed report recommending that China raise proportions of Euro, Yen in FX reserves even while keeping USD as main component of its reserves. Japanese Yen was also firmer, with USD/JPY falling below 91.60 from 92.20 session high. In commodity FX, AUD traded up toward 0.9280 amid overall risk appetite. The Aussie did decline briefly on the disappointing Q3 PPI report from Australia, boding poorly for the quarterly CPI expected later in the week. New Zealand traded around unchanged levels at 0.7530, underperforming relative to AUD after a dovish WSJ report citing RBNZ Bollard that the country is unlikely to face any upward pressure on interest rates until mid-2010 at the earliest. Reserve Bank of New Zealand is expected to decide on interest rates later in the week as well.

- Crude oil prices are lower and trading below $80/bbl. The move lower in oil prices comes as the Nigerian rebel group, MEND, agreed to an indefinite cease-fire agreement, which took effect on Sunday. Also, the decline in oil prices is occurring after Friday's UK GDP report showed an unexpected contraction for Q3. Spot Gold is marginally higher and trading near $1055/oz, as the metal has moved between gains and losses on the session. Shanghai Copper prices are higher and have moved to the highest level since Sept of 2008, after Shanghai Futures Exchange copper inventories declined by over 4% in the week ended 10/23.