Asian Market Update: RBA November meeting minutes add to uncertainty about December rate decision as AUD falls; Japan officials warn on deflation, see Q4 GDP below Q3 growth levels


ECONOMIC DATA

- (KS) South Korea Department Stores Sales Y/Y: 11.4% v 8.6% prior; Discount Store Sales: 4.5% v -6.0% prior

- (JP) Japan Q3 Housing Loans: 0.8% v 0.4% prior

- (JP) Japan Sept Tertiary Industry Index m/m: -0.5% v 0.2%e (first decline in 4 months and a 6-month low)

- (SI) Singapore Oct Electronic exports: -13.8% v -11.7%e; Non oil exports M/M: -12.6% v 0.2%e; Y/Y: -6.1% v 0.2%e


SPEAKERS/PRESS

- Despite the strong Monday gains in the US, where investors cheered better than expected October retail sales data, Asian equity markets have given up early session gains to trade lower late in the day. Entering the final hour of trading in Tokyo, Nikkei225, Taiwan's Taiex, S&P/ASX, and the Hang Seng are all down about 0.5%. Korea's Kospi is off by a more marginal 0.1%, while Shanghai Composite is near unchanged. Ahead of the Tuesday US session, front-month S&Ps are down slightly by about 3 points, resuming some of the profit-taking that knocked US markets off their best levels in the final hour of trading.

- Reserve Bank of Australia's November meeting minutes marked the prime economic event in an otherwise light session as markets tuned in for greater clarity on whether the RBA will extend its tightening measures into December. Recall the November meeting statement was seen as disappointing for the prospects of another rate hike, translating into AUD weakness on mixed rhetoric calling for gradual policy moves. The RBA stuck to that same script, noting that the pace of tightening remains an open question considering the fine balance between tightening too early and keeping rates too low for too long. RBA was particularly cautious about the near future, noting the importance of supporting business and consumer confidence as economic stimulus fades. Policymakers did reiterate that underlying inflation is consistent with 2010 target and not as low as initially thought, even with A$ strength countering those price pressures. Overall, the mixed commentary did little for market confidence in another rate hike next month. AUD/USD weakened about 20 pips following the minutes while bond prices traded slightly higher.

- Japanese officials continued to temper investor optimism following the better than expected Q3 GDP report seen in the prior session, helping Nikkei225 reverse its early gains. Finance Minister Fujii warned that Q4 economic growth is likely to be below that of Q3, unemployment remains high, and downside risks for economy warrants further monitoring. Despite the need for ongoing stimulus, Fujii reiterated that the administration would try to keep new JGB issuance below 44T Yen in FY10/11, and that there were no talks on extra budget at the cabinet meeting. Also on the fiscal front, Japan's deputy Prime Minister Kan noted that all cabinet members are concerned about balancing economic stimulus needs against fiscal discipline, planning to meet with the Bank of Japan regarding ongoing deflationary threat supported by the recent economic data.

- Elsewhere in Asia, US President Obama met with China President Hu, as both officials voiced support for more cooperation / less protectionism. Individually, Chinese official saw signs of global economic revival but no firm recovery, and Pres Obama said he was pleased to note China comments on moving toward market-oriented exchange rates.
Separately in China, govt think-tank CASS said property prices are expected to remain stable in Q4 and next year, denting speculation of real-estate property bubble. Over in Korea, BOK Deputy Governor offered more dovish regional central bank commentary, stating that a rate hike without growth momentum may hurt economic recovery.


EQUITIES

- In individual equities, Korean press reported that Samsung Electronics would invest KRW10T to expand the Tangjung LCD plant complex, making it the world's biggest display plant. On a related note, Taiwan Semi said the company's capacity utilization rate is likely to stay high at around 85% in Q1 of 2010 on rising demand for 12-inch wafers. In the materials sector, Chinese press said Wuhan Iron and Steel Co has signed an agreement to buy iron ore from Venezuela at prices independent of key global miners. Rio Tinto and BHP still finished up about 1% despite the overall Sydney weakness, with commodity prices benefiting from the recent USD drop. On the Nikkei, Tokyu Corp was said to consider selling some of its holdings in JAL because the stake "no longer offer synergies" to its rail/real-estate business. Japanese press also speculated that Kirin Holdings would delay merger with Suntory Holdings until January, and saw Nissan supplying lithium batteries to other automakers as part of an effort to boost production in its joint venture with NEC Corp.


CURRENCIES/FIXED INCOME/COMMODITIES

- In currencies, US dollar was slightly firmer after the initial decline, with mild risk-aversion tracking the midday reversal in Asian equity markets. EUR/USD retreated from 1.50 to trade down to 1.4930's, GBP/USD briefly tested below the 1.68 handle, and USD/CHF rose above 1.01. In commodity FX, AUD/USD fell 40 pips to 0.9330 after the cautious RBA minutes, and USD/CAD was lifted over 30 pips to 1.05. Japanese Yen consolidated its US session gains that saw USD/JPY fall to 88.80 - the lowest level since mid-October. The Yen was also firmer against other majors as EUR/JPY and AUD/JPY extended their retreat toward 133.00 and 83.00 handles respectively.

- Crude oil prices are declining and trading below $79/bbl, tracking the weakness in Asian equities. In terms of energy market commentary, the IEA's Executive Director Tanaka said there has not been much actual demand for oil in OECD countries, while noting that the speed of the global economic recovery may not justify a Dec output increase from OPEC.
Additionally, during yesterday's US session, OPEC's President Vasconcelos said current oil prices are at a "good level". Spot Gold is lower by more than $1.00/oz after the metal rose to a fresh record high of $1,143/oz. Shanghai Copper prices are higher and near a 14-month high, tracking the earlier rally in LME copper.