Asian Market Update: China Commerce officials comment on Yuan revaluation pressure; USD consolidates gains in the wake of discount rate hike rumors


ECONOMIC DATA

- (NZ) New Zealand FEB Visitor Arrivals: -1.9 v -2.4% prior

- (NZ) New Zealand Feb Credit Card Spending M/M: -0.3% v 1.5% prior; Y/Y: 1.1% v 2.6% prior (4-month low)

- (JP) JAPAN JAN ALL INDUSTRY ACTIVITY INDEX M/M: 3.8% V 1.5%E (multi-year high)

- Asian equity markets enter the final stretch of the trading week on a cautious tone similar to that of the prior session, with little economic data to drive bullish sentiment further. Nikkei225 is the leading index in the region with a 0.7% gain, recovering from late-session selloff yesterday derived from further Greek bailout uncertainty. Consumer goods and technology sectors outperformed in Tokyo, while financials lagged the rally. Sydney's S&P/ASX and Korea's Kospi gains are more contained below 0.5%, while Shanghai Composite and Taiwan's Taiex are down around 0.2%. Front-month S&Ps action is similarly muted, trading unchanged around 1,161.


SPEAKERS/PRESS

- China commerce ministry officials further reflected on Yuan revaluation speculation. China Business News reported the Commerce Ministry would announce the results of yuan stress-tests on exporters discussed in the prior session in late April. The report further stated the Finance Ministry is conducting its own study about the impact of the yuan on businesses.
Separately, Vice Commerce Minister Zhong said that further appreciation of the yuan could severely impact exporters' business. In other Chinese speakers, Commerce Ministry's Dept of American and Oceanian affairs official He urged US to stop politicizing China currency and trade issues, noting that it was China's purchase of US Treasuries that helped stabilize the financial market. Former PBoC Adviser Yu also said the US government should take measures to address concerns in China regarding the safety of its fx reserves. Meanwhile, the South China Morning Post reported that Chinese central bank would drain CNY213B in open market operations - the largest drain of liquidity in two years.

- Over in Japan, Nikkei News reported that average land prices fell 4.6% y/y as of January, an accelerated decline from prior year's 3.5%. Japan's outspoken banking minister Kamei cited the report as indication of persistent deflationary pressure in the economy, calling for further measures before the impact of extra budget recedes in the Spring.


EQUITIES

- In individual names, Samsung Electronics' annual shareholder statement saw 2010 operating profit and CAPEX levels above those seen in 2009, with sales expected to increase by double-digit percentile. Samsung CEO said business conditions may be more difficult because of rising competition. LG Electronics also offered mixed outlook between sustained demand and uncertainty regarding exit strategies among the major consumer nations. LG also stated it may consider acquisitions and would also roll out a "strong" smart-phone model offering the second half of the year. Also in Korea, Kia's announcement of expansion of Eastern Europe production capacity saw its shares hit multi-month highs.

- In Sydney markets, The Australian reported that Amcor may face damages of as much as A$697M from alleged price fixing. Arrow Energy was halted after Australian Financial Review reported the company is near agreement with Royal Dutch Shell and PetroChina to raise their current A$3.3B takeover offer. In Taiwan tech, Commercial Times said MediaTek planned to offer a record combined dividend to shareholders comprised of NT$26 in cash and 0.02 in stock for each share.


CURRENCIES/FIXED INCOME/COMMODITIES

- In currencies, European majors traded in a narrow sideways pattern, consolidating the losses against the greenback following chatter of further discount rate tightening by the Fed. EUR/USD ranged around 1.3600-3630, while GBP/USD was contained by 1.5330-60. In commodity FX, the greenback was firmer against CAD, rising to 1.0170 ahead of tomorrows Canada inflation data, but weaker vs AUD with the Aussie posting 0.9219 session high. Japanese Yen also continued to trade sideways, as USD/JPY shrugged this week's BOJ decision, unable to break above the 91.00 handle.

- Crude oil prices are lower and trading near $82/bbl, as some in the market question if the recent rise in oil prices has outpaced actual demand. Additionally, today's Wall Street Journal is running an article which raises questions about the reliability of the US Energy Information Agency's (EIA) weekly oil reports, as some companies have reported erroneous data to the EIA over the past 3 years. Spot Gold is lower and trading above $1,120/oz, as some dealers note the earlier bargain hunting which had supported prices has eased. In terms of the outlook for gold, the concerns related to the developing situation in Greece are seen as continuing to be supportive because fiscal concerns have made some investors less willing to hold paper currencies. In terms of physical demand for gold, there have been reports noting that ETF demand for the metal has eased in recent weeks, as the world's largest gold ETF (SPDR Gold Trust) has not revised its holdings since March 10th. Copper prices are higher, tracking the slight rebound in the euro.

- In commodities-related press news, China's Iron and Steel Association (CISA) said the country's 2010 steel exports might slow. Also, the CISA said China's Jan-Feb steel output was well above market demand. In Feb, China's steel production rose by 22.5% y/y to 50.4M tons. In Australia, global miner Rio Tinto confirmed that it would establish a joint venture with Chinalco related to the Simandou project in Guinea. Rio Tinto will own a 53% stake in the joint venture, while Chinalco will hold a 47% stake. The Simandou project has the potential to produce up to 2.25B tons of ore, making it one of the largest undeveloped ore resources.