Asian Market Update: Australia CPI fails to impress as swap markets downgrade steeper RBA rate hike; Speculation over breakup in UK financials fuels more risk aversion; Yen benefits at the expense of AUD, NZD


ECONOMIC DATA

- (KS) South Korea Sept Current Account: $4.2B v $2.04B prior; Goods Balance: $5.5B v $3.5B prior

- (JP) Japan Sept Retail Trade M/M: 0.9% v 0.2%e; Y/Y: -1.4% v -1.6%e (10-month high); Large retailers sales: -5.6% v -5.9%e

- (AU) Australia Oct DEWR Skilled Vacancies: 1.9 v 1.7% prior (multi-year high)

- (AU) Australia Q3 CPI Q/Q: 1.0% V 0.9%E (1-yr high); Y/Y: 1.3% V 1.2%E (10-yr low); RBA Trimmed Mean Q/Q: 0.8% v 0.7%e; Y/Y: 3.2% v 3.2%e

- (NZ) New Zealand NBNZ Oct Business Confidence: 48.2 v 49.1 prior (first decline in 8 months)


SPEAKERS/PRESS

- Asian equity markets are trading notably lower for the second consecutive session, as concerns over continued economic recovery amid waning fiscal stimulus see investors more willing to trim their risky asset holdings at the first sign of a pullback. Entering the final hour of trading, Nikkei225 is at its worst level on the day and lowest level in 2 weeks, falling 1.3% below 10,090. Taiwan's Taiex, S&P/ASX, and Shanghai Composite are also down by just over 1%, while Korea's Kospi is leading the profit-taking slide with a 2% drop. Ahead of the Wednesday US session, front-month S&Ps are also marginally lower, down 0.2% just below 1,060.

- Australia Q3 CPI marked the primary economic event on the session. Although the figures beat estimates, the narrow margin coupled with overall risk aversion prompted AUD/USD whipsaw above 0.92 post-release followed by a plunge below 0.91. Concurrently, London Independent added to market jitters, speculating that parts of UK banks Lloyds, RBS and Northern Rock will be broken up. Speaking after the release of the Aussie inflation data, Treasurer Swan said CPI showed broad based easing in inflation, forecasting pricing pressure to remain subdued over the near term. Australia's Treasurer - an opponent to RBA tightening earlier this month - said the economy would operate below capacity for some time, with unemployment rising further on weak business investment. Elsewhere in Australia, S&P noted that delinquencies on residential mortgages loans underlying prime RMBS fell to the lowest level in a year. RBA Assistant Gov Edey saw improvement in overall financial market conditions despite deterioration in business loan quality and an increase in loan losses.

- Over in Japan, vice finance minister Noda said it was too early for BoJ to raise interest rates while also calling for govt bond sales to exceed ¥50T this year. The debate over whether the new administration can keep its promise of fiscal sensibility amid falling tax revenue also played out in the Japanese press, where an additional ¥8T in FY09/10 bond issuance was said to meet the govt funding shortfall. In other regional speakers, China's Banking Regulator Liu said the country's economic recovery is not solid, while Unirule Institute of Economics in Beijing saw Chinese GDP gaining 8.2% in 2009. Ahead of tomorrow's central bank decision in New Zealand, Finance Minister English saw consumer confidence improving, just as Business Confidence report saw its first decline in 8 months.


EQUITIES

- In individual equities, Japanese automakers reported their monthly Sept production volumes that saw further slowing in the yearly pace of decline. Toyota produced 682K units (-2.5% y/y v -9% prior), Nissan produced 289K units (-8.5% y/y v -13.7% prior), and Honda made 301K autos (-17% y/y v -17% prior). The latter also helped the overall early rally in auto names after beating forecast and upping full-year guidance in the prior session. In Japan-related press, WSJ said Delta Airlines retained Goldman Sachs to advise regarding possible merger with Japan Airlines, and Nikkei reported that Kirin Holdings merger with Suntory may be delayed by regulators on concerns over fair competition in the sector. Outside Tokyo, National Australia Bank beat on FY earnings, posting Net A$5.5B v A$4.2Be on sales of A$17.7B v A$17.0Be.
However, NAB was less than upbeat going forward, with waning stimulus undercutting economic growth

NAB.AU: Says economic growth has been spurred by fiscal stimulus; Unemployment rate likely to continue rising

TLS.AU: Reaffirms FY2010 guidance for free cash flow, EBIT and EBITDA; Australian dollar rise has created pressure - Expects low single digit revenue growth.


CURRENCIES/FIXED INCOME/COMMODITIES

- In currencies, US Dollar and Japanese Yen were the beneficiaries of continued risk aversion, with most acute weakness seen in Asian commodity FX. AUD/USD fell to 2-week lows below 0.91 as traders pared their estimates for a more aggressive RBA tightening next week, while NZD/USD hit 1-week lows below 0.74. In European majors, USD consolidated its gainst vs EUR and CHF around 1.48 and 1.02 respectively, and GBP/USD remained offered below 1.64. Japanese Yen rose across the board, with USD/JPY falling to 91.10 and EUR/JPY hitting 1-week lows below 135.

- Crude oil prices are lower and trading below $79.50/bbl. Crude oil prices are being weighed down by the firmer US dollar and weakness in Asian equities. Following yesterday's US equity close, API disclosed that weekly crude inventories unexpectedly declined, while gasoline stockpiles dropped less than expected (API PETROLEUM INVENTORIES: CRUDE: -3.5M V +1.4ME; GASOLINE: -255K V -1ME). Later today, the US Department of Energy will release its weekly inventories data. In terms of Asian related energy news, an unconfirmed report disclosed that Indonesia might sell as much as 3M barrels of crude by the end of this year. Indonesia is expected to produce 960K bpd of crude oil in 2010. In China, refiner Sinopec said that it expects that its fuel sales will be higher on a year over year basis in Q4, as fuel sales have rebounded since August. As speculation mounts regarding a possible OPEC output increase, Kuwait's Oil Minister was quoted as saying that the cartel might raise production when compliance with quotas reaches 100% (vs. 62% in Oct). Spot Gold prices are lower and trading below $1,040/oz on the stronger dollar. In terms of physical demand for gold, the SPDR Gold Trust ETF disclosed that as of Oct 26, its holdings declined by 1.2 metric tons to a total of 1,107 metric tons. This was the first time that the ETF pared its gold holdings since 10/21. In other commodities, news the head of China's sovereign wealth fund (CIC) said the fund has increased its investments in areas, including commodities.