A weak Nikkei leads to a “risk-off” session in Asia


MAJOR HEADLINES – PREVIOUS SESSION

  • CA Oct. CPI out at -0.1% m/m, +0.1% y/y vs. +0.1% expected for both and flat/-0.9% prior resp.

  • US Weekly MBA Mortgage Applications out at -2.5% vs. +3.2% prior

  • US Oct. CPI out at +0.3% m/m vs. +0.2% expected and +0.2% prior

  • US Oct. CPI Ex-Food/Energy out at +0.2% m/m vs. +0.1% expected and +0.2% prior

  • US Oct. Housing Starts out at 529k vs. 600k expected and revised 592k prior

  • US Oct. Building Permits out at 552k vs. 580k expected and revised 575k prior

  • SI Q3 Final GDP out at +14.2% q/q, +0.6% y/y vs. +14.0%/+0.5% expected and revised +21.7%/-3.3% prior

  • AU Aug. Avg. Weekly Wages out at +0.9% q/q, +5.2% y/y vs. +1.3%/6.1% prior resp.

  • JP Sep. All Industry Activity Index out at -0.6% m/m vs. flat expected and +0.9% prior

  • JP Sep. Final Leading Index out at 86.4, unchanged from provisional estimate

  • JP Sep. Final Coincident Index out at 92.7 vs. 92.5 provisional estimate


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • Swiss Trade Data (0715)

  • Sweden Unemployment (0830)

  • UK BOE’s Fisher to speak (0920)

  • UK Retail Sales (0930)

  • UK M4 Money Supply (0930)

  • UK Public Finances (0930)

  • UK BOE’s Lending Trends Report (0930)

  • CA Int’l Securities Transactions (1330)

  • CA Wholesale Sales (1330)

  • CA Leading Indicators (1330)

  • US Weekly Initial Jobless Claims (1330)

  • US Leading Indicators (1500)

  • US Philly Fed Index (1500)

  • US Mortgage Delinquencies (1500)

  • US Treasury’s Geithner to testify (1500)

  • EU ECB’s Trichet to speak (1600)

Market Comments:

Yesterday’s session was predominantly spent with the dollar trading in established ranges. US data releases were mixed, with CPI edging marginally above expectations while housing starts and building permits disappointed, underlining the fragile state of that particular sector. St Louis Fed’s Bullard commented that the Fed’s tightening campaign may not start until the first half of 2012, (or 2-1/2 to 3 years after the end of previous two recessions) and the recent memory of the housing bubble may push the Fed to hike rates more quickly than in the past . The comments caused a stir in bond markets with short-dated yields edging lower but longer dated yields pushed higher, a 6bp steepening all-in, though the impact in USDJPY was only marginal with the air running into resistance at the 89.50 level.

The other major mover was GBP with the BOE minutes providing the customary volatility. A 3-way split on the quantitative easing vote with Miles voting for more than the £25b announced and Dale voting for none. The MPC discussed lowering the interest rate on reserves to encourage lending (GBP bearish) but raised its inflation forecast to a 2.7% annualized rate in Q1 next year (GBP bullish). In the end GBP bears won the day, though medium-term trend-line supports remained intact.

Following the non-descript close on wall St yesterday, Asian bourses were floundering around for direction early in the session. The Nikkei was noticeably weak following reports that Japan’s FY2009 tax receipts may fall below initial forecasts of ¥46 tln, sparking talk of the need for further bond issuance. Bear in mind that on Tuesday FinMin Fujii warned that an increase in bond sales in the next financial year would be a “big problem” (referring to the second additional budget) and presumably the same thoughts apply to a revenue shortfall. Also there was talk that the government was considering back-pedaling on pre-election pledges of monthly child allowances (the first of many?). Concerns about capital raising plans by Japanese banks led financials lower and the Nikkei was down 1% by the lunch break and JPY crosses pushed lower in tandem.

Talk of asset bubbles in China featured in the FT today with the property sector coming under scrutiny. While earlier this week blame for potential asset bubbles was placed on ultra-loose US policy (by PBOC’s Fan Gang and the CBRC chairman), this article targets China’s credit-driven stimulus programme as the culprit which is fueling rampant wasteful investment in the sector, undermining the country’s long-term growth prospects, according to one of the country’s most prominent real estate developers.

The range-bound environment from yesterday extended into the Asian session although risk currencies tended to trade towards the lower end of recent bands. Data releases had little impact on trading and it seems we need to wait for weekly US jobless claims to provide further inputs. Elsewhere on the data front we see Swiss trade data, Sweden unemployment, UK retail sales, money supply and BOE’s trends in lending report in the European session. The US session kicks off with Canada securities transactions, wholesale sales and leading indicators while the US announces weekly jobless claims, leading indicators and the Philly Fed index.