Asian Market Update: Equities retreat on cautious comments by PBOC adviser Fan Gang; Australia Q3 wage growth slows to multi-year low pace, diminishing December RBA move prospects and sinking AUD; Oil tests 1-week high on bullish API inventories


ECONOMIC DATA

- (AU) Australia Sept Westpac Leading Index m/m: 0.9% v 1.1% prior (4-month low)

- (AU) Australia Q3 Wage Cost Index Q/Q: 0.7% V 0.7%E (3-year low); Y/Y: 3.6% V 3.6%E (5-year low)

- (SL) Sri Lanka Central Bank cuts Repurchase Rate by 50bp to 7.50% v hold at 8.00%e; Cuts Reverse Repo rate by 75 bps to 9.75% v hold at 10.50%e

- (JP) Japan Oct Final Machine Tool Orders y/y: -42.5% v -42.6% prior


SPEAKERS/PRESS

- Asian equity markets were in retreat mode after a strong first half of the session for the second time this week, pulling back on disappointing wage data from Australia, cautious comments from PBOC adviser Fan Gang, and trouble on the horizons for Japan Airlines. S&P/ASX closed up 0.2% at 4,739 but well off session highs around 4,780, weighed down by weakness in utilities and industrials sectors. In the final hour of Tokyo trading, Nikkei225 is down 0.8% at 9,650 after approaching 9,800 on weakness in financials. Elsewhere, the Kospi was immune to the selloff, leading the region with a 1% gain, while Shanghai and Taiwan were both up 0.4% but also well off session's best levels. Ahead of the Wednesday US open, front-month S&Ps are down marginally at 1,106.

- Australian dollar extended its profit-taking slide from multi-month highs against the greenback and other majors after further slowing in wage growth seen in Q3. Q/Q 0.7% print marked a 3-year low, while Y/Y 3.6% was a near 5-year low, putting a damper in the RBA rate hike prospects for early December. Following the RBA November meeting minutes released yesterday, several analysts were also notably more cautious. According to Australian press, Deutsche Bank chief economist Tony Meer said that the RBA is nervous about moving too far ahead of other central banks, and UBS interest rate strategist interpreted RBA language expressing some comfort level with 3.50% rates. RBA's Debelle spoke early in today's session but did not provide any insight on monetary policy, noting the central bank no longer expects secured paper as collateral for repo operations but was keeping residential mortgage-backed securities eligible.

- People's Bank of China Adviser Fan Gang offered a downbeat outlook for US and cautious sentiment on China economy. Fan stated that in the US, the economy may still fall victim to a double-dip recession, and China recovery, while not threatened with a double-dip, still needed stimulative policy to be sustained. Over the near term, PBOC adviser saw 2010 GDP in 8-9% range, with long-term sustainable growth around 7-9%. Referring to the speculative bubble developments in real-estate, Fan recommended a tax on luxury properties in order to balance out demand.

- Elsewhere in Asia, Japan's budget panel identified ¥1.4T in potential spending cuts to be taken out of funding for the development of next-generation supercomputer and the GX rocket technologies. Separately, OECD said that signs of recovery in Japan have come at the price of the fiscal situation, also urging Bank of Japan to pay attention to deflationary trends. Fiscal challenges were also acknowledged by the Finance Minister of New Zealand, who said that public service wages must reflect non-govt trends. In Sri Lanka, the central bank took the markets by surprise with rate cuts to Repo and Reverse Repo rates, pointing to inflation pressures remaining subdued.


EQUITIES

- In individual equities, Toyota was said to have increased its October global sales by 5% y/y to 640K vehicles, the first increase in 15 months. Japanese banks continued to trade lower ahead of the H1 results from Mitsubishi UFJ, with rumors of a Y1T equity raise weighing on the company. Financials were also impacted by uncertainty clouding Japan Airlines. Japan Transport Minister Maehara said a court-led bankruptcy for the company is still an option, while Delta and its Skyteam partners noted they may be prepared to invest more than $900M into the company. In energy, Nippon Oil was said to be looking to close the Iraqi oilfield development deal with Iraq sometime this month.

- In Australia, local press commented on BHP potentially facing a A$8.5B loss in value if mining investor Andrew Forest is allowed access to its private rail lines in Pilbara. Australia tribunal is currently considering whether the BHP/Rio Tinto Pilbara rail networks should be opened to Andrew Forrest's Fortescue Metals Group and other potential haulers under the Trade Practices Act, with BHP said to consider building a new railway for smaller miners if that permit comes to pass. Separately, Australian press commented on the proposed BHP/Rio JV coming under threat from EU regulators, as lead lobby group representing European steelmakers claimed that the partnership would reduce competition by allowing sharing of information about iron ore supplies. Elsewhere in Sydney, local press noted that Qantas union has warned its members regarding possible redundancy elimination by mid-2010, while TV networks Seven and Ten reportedly secured advertising rate increases in 2010 on rising TV promotional demand.

- In Asian tech, LG Display was said to plan a NT$4.8B LED chip plant in Jiangsu, China as part of a joint project with Formosa, Amtran, and Unity Opto. In Taiwan, Topology Research Institute said global LCD TV shipments would grow 20% next year to 156M units. In financials, HSBC Chairman Lee Pal Seung said the company may acquire an overseas bank next year, without specifying any targets or countries of focus.


CURRENCIES/FIXED INCOME/COMMODITIES

- In currencies majors, AUD was one of bigger movers on the session, falling to 0.9270 from 0.9320 after disappointing Q3 Wage cost index data. In European majors, EUR/USD traded sideways in 1.4860-90 range, and GBP/USD was thin around 1.6780-1.6830 ahead of the Bank of England minutes. Japanese Yen was marginally firmer, with USD/JPY falling below 89.10, and EUR/JPY bouncing lower from 133 handle.

- Crude oil prices are gaining and trading near $79.50/bbl on bullish weakly API crude and gasoline inventories data (API PETROLEUM INVENTORIES: CRUDE: -4.37M V +1.1ME; GASOLINE: -900K V +850KE). Later today, the US Department of Energy will release its weekly inventories data. In the press, an article in the Wall Street Journal suggested that in 2010 OPEC could seek to increase its production capacity. The article adds that the expected capacity increase could come amid declining demand for oil, which would put pressure on prices. Spot Gold prices have pared their gains after rising to a fresh record high near $1,144/oz earlier during the session. Coupled with the record gains in Spot Gold prices, Shanghai gold also rose to a fresh record high. As spot gold prices have continued to make new record highs, there have been various market players calling for a reversal. In the Wednesday's edition of Canada's Globe and Mail, an article examines whether gold prices have peaked based on anecdotal evidence. The article concluded that gold prices may have further room to run because despite the move higher in prices, the gold story is still being ignored by most of the mainstream media. Globe and Mail added that warning signs of a potential reversal in gold prices could be an increase in the frequency of extreme price targets for the metal, such as forecasters calling for $8,000/oz.