Asian Market Update: Shanghai Composite leads equity decline as PBOC turns more hawkish; World Bank remains cautious, warns on risks for 2010 recovery


ECONOMIC DATA

- (NZ) New Zealand Oct REINZ House Sales M/M: 1.3% v 1.9% prior; Y/Y: 36.3% v 43.7% prior

- (NZ) New Zealand Oct Non-Resident Bond Holdings: 71.2% v 72.1% prior

- (JP) Japan Sept Final Industrial Production m/m: 2.1% v 1.4% prior; Y/Y: -18.4% v -18.9% prior (10-month high); Capacity Utilization: 1.6% (6-month low) v 2.3% prior

- (SI) Singapore Sept Retail Sales M/M: -7.9% v 0.7%e; Y/Y: -11.8% v -5.0%e

- (JP) Japan Oct Consumer Confidence: 40.8 v 40.5e; Households: 40.5 v 40.6e


SPEAKERS/PRESS

- After a strong start this week, Asian equity markets have turned progressively more cautious going into the weekend, tracking the Thursday reversal in the US that saw S&P500 back away from 1,100 level for the second time in a month.
S&P/ASX closed down 0.9%, while the Kospi and the Nikkei entered the final hour down 0.2%. Shanghai Composite appears to be the most affected decliner, losing over 1% on more hawkish rhetoric out of the People's Bank of China.
Ahead of the Friday US session, front-month S&Ps remain relatively unchanged around 1,088.

- A report out of the People's Bank of China recommended a tighter bias for monetary policy over the medium and long term and a loose credit policy, noting central bank has "mopped up" liquidity in open market operations as of late.
Moreover, PBOC saw ample liquidity in the banking system, suggesting that economic growth has benefited from the growth of credit. Speaking later in the session, PBOC Deputy Governor Zhu Min said China is experiencing a V-shaped recovery, but needs to shift its growth focus from that of pace to quality. Elsewhere in China, the Land Ministry refuted speculation of oversupply in the real estate market, stating that the rapidly rising home prices are "abnormal".

- World Bank President Zoellick reiterated a cautious view regarding 2010 expressed earlier this week, forecasting lasting large-scale unemployment and ample Asia liquidity conditions posing runaway inflation threat. Moreover, Zoellick noted the role of US consumer would be greatly diminished, and bank lending was still below pre-crisis levels just as govt fiscal stimulus measures worldwide begin to fade. Regarding the dollar, World Bank President stated that US policymakers face few options, with confidence levels in US assets determining USD value.

- In other regional speakers in Asia, Japan's Fin Min Fujii supported overwhelming APEC rhetoric to maintain stimulus measures for the time being, noting that Q3 GDP will become critical for determining the extent of the extra budget funds.
Korean trade minister was local economy was performing "fairly well" despite anticipated flat level of export growth in 2009, attributing resilience to domestic diversification. Malaysia Central Bank Governor Zeti reaffirmed commitment to easy policy and focus. Over in Philippines, Finance Sec Teves suggested that Q3 GDP would be positive, forecasting 2010 growth levels at 2.6-3.6%. Earlier, Philippine press suggested that domestic economy may miss the official 1.8% growth target, rise 1.3%. In Singapore, Prime Minister Lee noted that even with global economy emerging out of crisis conditions, recovery was not yet on firm footing, also calling for greater global cooperation in fiscal stimulus exit. Over in New Zealand, finance Min English said consumers were unsure regarding housing and employment, with New Zealand dollar rally weighing on manufacture/export sector.


EQUITIES

- In individual equities, Nintendo returned to being the top selling videogame system in the month of October, even as US sales declined 19% y/y to $1.07B v $1.3B seen in September. Ahead of the Japan Airlines 1H earnings report, Transport minister said the results are likely to be "harsh". Several Nikkei financials also released their 1H numbers: Aozora Bank net profit improved to ¥6.5B v loss ¥28.0B y/y, and Sumitomo Trust net was in line with estimates around ¥19B. In other Tokyo names, Sony said it planned to cut the number of its in-house data centers to 2 from about 60 in order to save costs.

- Outside Japan, Korean press said Samsung and LG are targeting a 20% increase in mobile handset sales in 2010, with Samsung raising its market share to 22% and LG capturing 12%. In Taiwan, Chi Mei refuted press speculation it was considering a partnership with Hon Hai and AUO. In Sydney, BHP announced a Nov 25th deadline for Ravensthorpe nickel mine bids, and Qantas was reportedly faced with a strike by a group of engineers that could potentially disrupt flights.
Japanese Yen


CURRENCIES/FIXED INCOME/COMMODITIES

- In currencies, US dollar majors traded in narrow ranges across the board on the absence of economic data despite the mild risk aversion in Asian equities. EUR/USD and GBP/USD saw narrow bands of 1.4850-70 and 1.6570-1.6610 respectively. In commodity FX, AUD/USD traded narrowly around 0.9250, consolidating US session drop from 15-month highs seen yesterday. NZD/USD downside has been capped at 0.73 as local policymakers become progressively more vocal about the Kiwi strength. Japanese Yen was weaker in US hours, with USD/JPY rising above 90.50 before retreating below 90.20 as markets continue to price in the likelihood of additional budget requiring further JGB issuance.

- Crude oil prices are little changed and trading near $76.50/bbl. During the earlier NY floor session, oil prices fell over 2% on the firmer US dollar and bearish US Dept of Energy inventories data (DOE CRUDE: +1.8M V +900KE; GASOLINE: +2.6M V -300KE). Spot Gold prices are marginally higher and trading above $1,105/oz on dip buying, after falling over $7 during the COMEX session. Shanghai Copper prices are trading lower, tracking the early weakness in Chinese equities. Later today, the Shanghai Futures Exchange will release its weekly copper inventories data.

- In commodities related news, the Saudi Arabian Oil Minister Naimi reiterated that he was not aware of any plan to change the currency in which oil is priced. The Saudi Oil Minister added that downstream investments would help double Saudi Arabia's domestic and international refining capacities in 6 years. In South Korea, the head of the country's $30B sovereign wealth fund said the fund had no current plan to significantly grow its investment in hard assets. In Chile, Codelco, the world's largest copper producer, said it expects copper demand in 2010 to be supported by the economic recoveries in the US and EU. Also, Codelco is planning to increase its copper production in 2010. In China, the government announced that it was planning to limit projects that do not meet proper environmental guidelines, with a focus on industries including steel and coking coal.