Asian Market Update: Australia posts wider than expected trade deficit, but commodity and China exports recover; One of China's top banks reduces rate discount to first-time home buyers


ECONOMIC DATA

- (AU) Australia Jan AiG Performance of Service Index: 47.4 v 50.0 prior (First contraction in 4 months and a 6-month low)

- (AU) Australia Dec Trade Balance (A$): -A$2.25B V -A$2.4BE (biggest deficit since March)

- (HK) Hong Kong Jan PMI: 55.8 v 55.2 prior

- (RU) Russia Jan Services PMI: 51.9 v 53.4 prior

- (IN) India Jan Services PMI: 59.0 v 57.4 prior

- Second day of Asian equity market gains tracking another triple-digit rally on the Dow saw stronger buying interest than in the prior session, when surprise hold by the RBA tempered risk appetite. S&P/ASX, Korea's Kospi, the Taiex, and the Hang Seng are all up about 1% entering the final hour of Tokyo trading. Nikkei225, weighed down by Toyota recall aftermath, is still up 0.2%, while Shanghai Composite is shrugging more real-estate lending-related developments to gain 0.8% at the break. With ADP jobs report on the radar tomorrow, front-month S&Ps are up marginally at 1,098.


SPEAKERS/PRESS

- Australia's December trade balance marked the key economic event on the session with mixed results. Although the deficit widened to its highest level since March of 2009, both exports and imports grew on a m/m basis by 4% and 6% respectively. Moreover, Australia's top two exports of coal and iron ore have risen from their recent multi-month lows to 3-month highs (A$2.81B v A$2.47B prior and A$2.36B v A$2.23B prior), while export to China reversed November's multi-month low to multi-month high at A$3.8B v A$3.09B prior. On a related note, Australian Financial Review reported on the rising industry hopes that soured relations between Rio Tinto and Chinese steel mills may improve after recent meetings in Singapore. Local press also said Rio has also finished the first round of its 2010 iron ore price talks with Japanese and South Korean steel makers, seeking a 40% y/y price increase.

- Over in China, the Bank of China Ltd. (not the central bank) - one of the nation's top lenders - confirmed press reports that it has increased the preferred borrowing rate for first-time home buyers to 15% discount to benchmark lending rates v the 30% prior. Competitor ICBC said it has not taken a similar step, however. Separately, according to WSJ, Fitch downgraded the ratings for China Citic Bank and China Merchants Bank, noting that overall Chinese banks face the highest risk of a bubble among Asian banks. The action represents the first time that Fitch downgraded a Chinese bank in more than 6 years.

- In regional speakers, South Korea's Finance Minister Yoon said the economy still faces risks despite the recent improvement in economic data, with job growth from the private sector still seen as weak. South Korea, taking over the G20 chairmanship, said it would work with the body to create more sustainable growth. Regarding FX, Yoon said KRW values are driven by economic fundamentals and supply/demand conditions rather than active management.


EQUITIES

- In individual equities, Honda reported better than expected Q3 Net ¥135B v ¥85Be, Op profit ¥177B v ¥95Be, Rev ¥2.2T v ¥2.3Te and raised its FY10 guidance to Op Profit ¥320B v ¥126Be, Rev ¥8.5T v ¥8.6Te from Op profit to ¥190B, Rev ¥8.3T prior. However, the company noted its income increase was attributed primarily to decreased SG&A expenses and R&D expenses. Earlier in the session, major Asian automakers reported y/y Jan US sales, with Honda at -5%, Toyota at -8.7%, and Hyundai at +24%. Toyota was weak once again, lowing 3% in the aftermath of the recent recalls.

- In other earnings on the Nikkei, Kobe Steel posted 9-month Net loss ¥38B v profit ¥42B y/y on Rev ¥1.2T v ¥1.7T, raising FY09/10 outlook to Net loss ¥22B v loss ¥29Be, Op Profit ¥35B v ¥25Be ( et loss ¥35B, Op Profit ¥20B prior). Mitsubishi Motor reported Net loss ¥25.7B v loss ¥4.8B y/y, Op loss ¥19.8B v profit ¥20B y/y, Rev ¥952B v ¥1.7T y/y and reaffirmed its prior FY forecast. In Tokyo industrials, Asahi Kasei posted 9-month Net ¥20.6B v ¥25B y/y, Op Profit ¥40B v ¥50B y/y, Rev ¥1T v ¥1.2T y/y and upped its FY forecast to Net ¥23B v ¥19Be, Op Profit ¥53B v ¥52Be (net ¥16B, Op Profit ¥50B prior). Likewise, Mitsui Chemical posted a lower 9-month Net loss ¥33B v profit ¥4B y/y, Op loss ¥15B v profit ¥12B y/y, Rev ¥864B v ¥1.25T y/y, but raised its FY09/10 view to Net loss ¥25B, Op loss ¥10B (Net loss ¥39B, Op loss ¥15B prior).


CURRENCIES/FIXED INCOME/COMMODITIES

- In European majors, EUR/USD and USD/CHF ranged around 1.3950-80 and 1.0540-70 respectively, but Sterling outperformed, with GBP/USD taking out 1.60 and EUR/GBP falling below 0.8720. In commodity FX, AUD and CAD consolidated their US-session gains against the greenback in 0.8830-80 and 1.0560-90 ranges. Japanese Yen was also relatively unchanged, ranging thinly in 90.30-50.

- Crude oil prices have pared most of the session's opening losses and are currently trading near $77/bbl. During yesterday's US session, crude oil rose by more than 3.5% on the weaker dollar and gains in US equities. Following the US equity close, API disclosed that weekly US crude inventories were higher than expected, while gasoline stockpiles unexpectedly declined (API PETROLEUM INVENTORIES: CRUDE: +4.7M V OE (FLAT EST.); GASOLINE: -1.16M V +1.2ME).
In geopolitical news, Nigerian rebel group MEND said that it would launch further attacks on the Trans-Ramos pipeline after announcing on Saturday that it would end its ceasefire agreement with the Nigerian government. Upcoming event risks for oil prices include the US Department of Energy's weekly inventories data and the US ADP employment report. Spot Gold prices are trading below $1115/oz, after the metal rallied over $12 on yesterday's NY session. In gold market news, the CEO of Newmont Mining reiterated that he believed gold prices could rise to $1,350/oz in 2010. Also, the Newmont executive expects that gold prices and demand will remain volatile. Shanghai Copper prices are higher by more than 0.50% supported by the rebound in the US pending home sales data. In terms of the outlook for the copper market, Southern Peru Copper expects prices to average $3.25/lb this year. In other commodities-related news, it has been reported that Australian miner Rio Tinto requested a 40% y/y price increase in the first round of its iron ore price negotiations with steelmakers in Japan and South Korea. The report added that steelmakers in China are not expected to agree to any price increases of more than 30% y/y. Last month, the Financial Times had reported that prior price disagreements, could cause the large global iron ore miners to focus more on their price negotiations with Japanese steel companies, as opposed to Chinese steel mills.