Asian Market Update: Equities turn more cautious on concerns over hot money inflows in China, S&P comments; USD gains on EUR on reported rift in Greek-German talks


ECONOMIC DATA

- (JP) JAPAN Q1 BSI LARGE ALL INDUSTRY Q/Q: -2.4 V -1.9 PRIOR; LARGE MANUFACTURING Q/Q: 4.3 V 13.2 PRIOR (second consecutive quarter of decline for both measures)

- (AU) Australia FEB RBA FX Transactions: A$424M v A$295M prior

- (NZ) NEW ZEALAND MAR ANZ CONSUMER CONFIDENCE INDEX: 121.8 V 123.6 PRIOR (3-month low); CONFIDENCE M/M: -1.5% V -5.9% PRIOR

- (AU) Australia Q1 Westpac ACCI Industrial Trends Index: 56.7 v 50.4 prior (highest reading since Q4 of 2007)

- (SL) Sri Lanka Central Bank keeps Repurchase Rate at 7.50% as expected

- (JP) Japan JAN Final Leading Index: 96.7 v 94.3 prior; Coincident Index: 100.1 v 97.6 prior

- Asian equity markets are trading mixed with more mild gains relative to prior session's rally, tracking the final hour profit-taking in the US. Sydney's S&P/ASX entered the final hour of trading up 0.1% - marginal gains matched by Korea's Kospi and Shanghai Composite. Nikkei225 is off by 0.2%, finding consistent buying interest just above 10,800 level, while Taiwan's Taiex is leading the way with a 0.9% rally. Ahead of Thursday open in the US, front-month S&Ps are up 0.1%, with core CPI and Philly Fed data on tap in the morning session.


SPEAKERS/PRESS

- Light economic calendar placed China back in the spotlight for the session, with concerns that further govt measures may impede overseas investment weighing on the recent prevalence of risk appetite. China Business News reported that the banking regulator proposed a forex tax aimed at slowing hot money inflows in order to determine who was engaged in FX market speculation. The official was also said to have proposed a zero-rate "Tobin tax" to warn FX speculators. In other govt bubble-busting measures reported by the press, China Securities Journal said the administration told banks not to make loans to land speculators. On a related note, S&P warned that Chinese banks will be tested by bad loans, even though a mortgage crisis was not very likely. Regarding the hot-button currency revaluation issue, US officials continued to exert moderate pressure ahead of April Treasury report. US Ambassador Jon Huntsman said the administration hopes to see greater flexibility for the yuan and further progress in economic rebalancing. Separately, Chinese press noted that the Finance Ministry may conduct stress tests related to yuan appreciation in certain provinces by the end of the month.

- Over in Japan, the central bank decision to implement "QE lite" measures by expanding fixed lending facility to banks by ¥10T in the prior session met with little optimism for the bank's ability to address deflation. An FT report called the step "almost irrelevant", since real lending rates are already at 0.12%, and noted that deflation is manifested through limited demand for credit seen from companies and consumers. The feature also points to structural concerns previously expressed by BOJ Gov Shirakawa in defending the central bank role, namely stating deregulation and low-priced imports contain inflation and also suggesting that cultural (propensity for lower wages over higher unemployment) and demographic factors (modest growth expectation based on aging population) may also be responsible. Recall the Yen saw a knee-jerk gain following the BOJ decision not to expand its monthly JGB purchase levels after yesterday's announcement.

- Monthly BoJ report traditionally coming after the central bank decision left overall economic assessment unchanged, but raised assessment of CAPEX and housing investment. Policymakers reiterated yesterday's warning on severe employment conditions and moderate pace of recovery. Regarding inflation, BOJ said the pace of CPI declines is narrowing.

- A pair of central bank officials outside the region offered some notable insight. Dallas Fed's Fisher said the current accommodative policy will change at some point but is not there yet, pointing to anemic economic recovery and high unemployment. BOE's Posen endorsed higher regulation and also suggested that countries must be willing to defend financial system through spending.


EQUITIES

- In individual shares, Toyota said it was conducting review of consumer complaints of random stalling on about 1.2M Corolla and Matrix models, and would like to meet with NHTSA. Also in Japan, Nikkei News said Pioneer may cut wages for its employees by 5%. In Taiwan tech, Economic Daily News said TSM sees a slowdown in the chip market in the second half. AU Optronics said it would build its new LCD plant in China if it cannot secure more land in Taiwan.


CURRENCIES/FIXED INCOME/COMMODITIES

- In currencies, the dollar benefited late in the day at the expense of the Euro after Greek official said the country may turn to the IMF amid deterioration in talks with Germany. Sterling was less affected but did test the downside of 1.53, while USD/CHF hit session highs above 1.0570. USD likewise gained against AUD and NZD, with pairs hitting 0.9197 and 0.7120 respective session lows. Japanese Yen was modestly higher on late-session risk aversion, with USD/JPY falling below 90.15 and EUR/JPY trading below 123.40.

- Crude oil prices are lower and trading near $82.50/bbl. Oil prices are being weighed down by the rebound in the US dollar. During yesterday's session, oil prices rose by more than $1, as OPEC said it would leave production levels unchanged. OPEC added that its meeting stressed the importance of compliance to quotas and the cartel believes that oil prices between $70-80/bbl are "comfortable." On yesterday's session, the US Department of Energy disclosed that weekly crude inventories rose more than expected, while gasoline inventories were lower than expectations (DOE CRUDE: +1.0M V +500KE; GASOLINE: -1.7M V +200KE).

- Spot Gold is higher and trading above $1,120/oz, after the metal retreated from the 1-week high of $1,132.80/oz, which was reached on yesterday's session. In other metals, copper prices are declining amid the firmer dollar.

- In commodities related news, the Chairman of BHP Argus said he was still cautious about the state of the global economy, after noting in Oct that the strength of the rebound in commodity prices needed to be questioned. Also, BHP's Chairman said the company could finalize its proposed joint venture with Rio Tinto this year. An earlier Australian press report said China might seek to challenge the Rio Tinto/BHP joint venture on concerns that it may limit competition. Separately, Sydney Morning Herald reported the trial of Rio's Stern Hu would begin on Monday.