Asian Market Update

Markets hopeful for a solution in Greece; USD gains against the yen

Economic Data

(JP) JAPAN DEC CURRENT ACCOUNT TOTAL: ¥303.5B V ¥340BE; ADJUSTED CURRENT ACCOUNT TOTAL: ¥752.3B V ¥625BE (3-month high); CURRENT ACCOUNT TOTAL Y/Y: -74,7% V -71.2%E; TRADE BALANCE: -¥145.8B V -¥135BE
(JP) JAPAN JAN BANK LENDING INCLUDING TRUSTS Y/Y: 0.6% V 0.6%E (27-month high); EX-TRUSTS Y/Y: 0.7% V 0.5% PRIOR
(UK) UK BRC SHOP PRICE INDEX Y/Y: 1.4% V 1.7% PRIOR (22-month low)
(KR) SOUTH KOREA JAN BANK LENDING TO HOUSEHOLDS (KRW): 452T V 455.0T PRIOR
(KR) SOUTH KOREA DEC MONEY SUPPLY L Y/Y: 9.4% V 8.9% PRIOR; M2 Y/Y: 4.4% V 4.4% PRIOR
(JP) JAPAN JAN BANKRUPTCIES Y/Y: -2.6% V -6.3% PRIOR
(JP) JAPAN JAN ECO WATCHERS CURRENT SURVEY: 44.1 V 47.4E (1st decline in 2-months); OUTLOOK SURVEY: 47.1 V 45.5E
(IN) India Jan Local Car Sales +7.2% y/y

Markets Snapshot (as of 05:30GMT)

Nikkei225 +0.8%
S&P/ASX +0.4%
Kospi +0.9%
Taiwan Taiex +2.1%
Singapore Straits Times +0.6%
Shanghai Composite +1.1%
Hang Seng +0.8%
S&P Futures +0.1 at 1,345
April gold +0.1% at $1,750/oz
March Crude +0.6% at $98.97

Overview/Top Headlines

Markets started off to the upside before gaining some momentum and making strong gains for the rest of the Asian trading session. Confidence has re-entered the market that the Greek debt situation will be resolved. PM Papademos met with Troika officials today to "put the finishing touches" on terms for the next bailout package and will meet with politicians today to talk about next round of austerity measures. EUR/USD traded in a 40 pip range testing $1.3275. The outperformers of the session were the Taiex, with 163 point and the Hang Seng with over 200 points. Nikkei225 was boosted by Toyota Motors, who raised its profit forecast after the close yesterday. China energy names were boosted by China's move to raise fuel prices for the first time in 10-months. Shares of BHP fell, though moderated as the session went on, after reporting weaker than expected H1 results before the open. Trading on the ASX remained subdued. In Japan Current Account Surplus fell to a 15 year low in 2011, with a larger than expected trade deficit due to lower exports and higher energy costs. USD/JPY was in a 40 pip range, rising to ¥77.16 after the Nikkei close, EUR/JPY held a 90 pip range ¥102.40-101.67. AUD/USD continued to strengthen rising over $1.0830. The Greenback was lower against the KRW, S$, NT$ and PHP.

Speakers/Geopolitical/In the press

(IN) Reserve Bank of India (RBI) Deputy Gov Gokarn: Open market operations are still on the table, no decision to stop them
(KR) According to Bank of Korea (BOK) data, bank loan ratio for smaller companies fell to record low 78.8% from 88.8% in early 2007 - Korean press
(CN) China top-4 banks had new yuan loans of CNY340B in January v CNY130B in Dec - China Securities Journal
(NZ) New Zealand raises minimum wage from NZ$13/hr to NZ$13.50/hr

Equities

BHP: Reports H1 Net $9.9B v $10Be; Rev $37.5B v $34.2B y/y
UMC: Reports Q4 Net NT$1.18B v NT$810Me, Rev NT$24.43B v NT$31.32B y/y
AUO: Reports Q4 Net loss NT$20.98B v loss NT$15.3Be; Rev NT$89.5B v NT$102.6B y/y
CHL, 941.HK: Hong Kong unit acquired 15-yr licensed use of 30MHz bandwidth radio frequency band from the Office of the Telecommunications Authority, enabling to offer LTE(4G) service - DigiTimes
Li & Fung, 494.HK: Cutting staff responsible for its European operation in Hong Kong due to the uncertain economic outlook in the EU - HK press
Renesas Electronics, 6723.JP: Discussing plans with Fujitsu and Panasonic to integrate their system chip manufacturing operations - Nikkei News
RIO: To invest an additional $3.4B into Pilbara expansion; Targeting Pilbara output of 283M tons/year by H2 2013

US Equities

WU: Reports Q4 $0.40 v $0.40e, R$1.43B v $1.4Be; Increases dividend 25% to $0.10 from $0.08; -6.6% after hours
RAH: Reports Q1 $1.33 v $1.38e, R$1.38B v $1.3Be; +0.4% after hours
PNRA: Reports Q4 $1.42 v $1.42e, R$495.8M v $499Me; CFO leaving company; Raises FY12 EPS guidance; -2.8% after hours
LNC: Reports Q4 $1.00 (adj) v $1.00e, R$2.71B v $2.8Be; -4.5% after hours
AVID: Reports Q4 $0.38 (adj) v $0.16e, R$185.3M v $177Me; +17.7% after hours
DIS: Reports Q1 $0.80 v $0.71e, R$10.8B v $11.2Be; -1.4% after hours

FX/Fixed Income/Commodities

(US) API PETROLEUM INVENTORIES CRUDE: -4.53M V +2.5ME (first draw in 3 weeks); GASOLINE: +4.43M V 0E; DISTILLATE: +390K V -1ME; UTILIZATION: 83.9% V 81.9% W/W
(TW) Taiwan Govt sells NT$35B of 30-yr bonds, yield of 1.865% (1.9% prior); Bid to cover 1.82x
AUD/USD: (AU) Australia Treasurer Swan: Strong A$ is causing strain and stress on the economy
USD/PHP: (PH) Philippines Central Bank Deputy Gov: We only enter the markets to ensure orderly forex dynamics
(CA) Canada sold $3B in 5-year USD-denominated debt; First "Yankee Bond" offering since Sept 2009 - US financial press
(CN) China MoF sells 1-yr bills at 2.87% v 2.78% on Jan 10th
(AU) Australia's Port Hedland Jan iron ore shipments at 17.4M tons; 14M tons shipped to China
SLV: iShares Silver Trust ETF daily holdings rise to 9,664 tons from 9,649 tons (highest since 9,698 on Dec 20th)

Optimism Remains As The Market Continues To Wait For A Greek Deal

O/N BULLETS

• UK BRC Shop price index up 1.4% y/y in January.
• Bernanke pledges to keep rates low till late 2014 on concerns of weakness in job market
• Japan Current account surplus rose to JPY303.5bn in December, less than expected

USD

USD traded lower yesterday as EUR/USD made year highs on optimism towards Greece; even the news that the meeting between the Greek party leaders was delayed to today did little to hamper risk sentiment overnight. USD/JPY edged higher during the risk-on move as spreads moved in favour of USD. But USD/CHF traded lower largely due EUR strength which saw EUR/USD and to a less extent EUR/CHF higher. With risk sentiment still positive on Greece, the downside bias to USD will likely remain today.

EUR

EUR/USD broke through the 1.3250 level yesterday following news the Greek government were working on a final draft for the bailout agreement. Talks between Greek party leaders were postponed to today, but EUR/USD continued to edge higher. While the market remains optimistic that a deal will be reached, EUR/USD will likely struggle to break higher, as we wait for news from Greece. But with EUR/USD already up two figures since Monday, a good outcome looks largely priced in and the upside could be vulnerable to positive news.

GBP


EUR/GBP edged higher yesterday, as the EUR rallied on optimism towards Greece. After some good numbers from the UK, there have been doubts whether the BoE will announce additional asset purchases at tomorrow's meeting. But market consensus and our economists expect another £50bn of QE; this could see this weigh on GBP performance today. And with Greece nearing an agreement, EUR/GBP will likely continue to edge higher towards the 0.84 level.

CHF


EUR/CHF continued to trade higher yesterday, partly helped by a stronger EUR/USD but largely due to SNB's Jordan's comments. He reiterated the SNB's determination to defend the 1.20 floor in EUR/CHF, and reassured markets the SNB would act at anytime, which would avoid a quick break below the 1.20 floor. He explicitly stated 'the commitment applied at any time, from when market opens in Sydney on Monday to when it close in New York on Friday'.

Spotlight – AUD - NZD 2y rate spread move in favour of AUD – Yesterday's RBA decision to keep rates on hold at 4.25%, against market expectations of a 25bp cut, saw rates move in favour of AUD vs NZD and AUD/NZD edge higher. AUD/NZD had been declining since the start of the year after it diverged from the 2y spread at the end of 2011 (chart below). NZD has been the notable out performer in G10 this year, closely followed by AUD and we still maintain our downside bias to AUD/NZD. The market continues to price in further rate cuts in Australia over the next few months; while the RBNZ have resisted removing the emergency 50bp cut implemented last year so far after some weaker inflation numbers in Q4. This evenings Q4 employment numbers could see some focus, and a good number could move in rate spreads back in favour of NZD

 

USD Tumbles As Sentiment Moves Higher

The buck reversed earlier gains after Bernanke downplayed recent labor data and the euro rose amid hopes that Greek debt and austerity negotiations are in the final stages. With no top tier economic data released out of the U.S., it was headlines once again that drove price action. Fed Chairman Ben Bernanke testified before the Senate Budget Committee and cautioned that the current unemployment rate 'no doubt understates the weakness of the labor market', noting the reduction in the labor force due to those that are discouraged. The dovish comments boosted market sentiment as it was interpreted that further accommodation is still under consideration. The prospect of QE3 put pressure on the US dollar with the greenback declining against all of the G10 currencies except for the yen.

The euro surged to new highs for 2012 against the USD as the common currency was boosted by prospects for a Greek debt deal in the coming days. Reports that a final draft of the bailout agreement is nearing completion and comments from the IIF that recent talks have been 'constructive' helped the euro to gain against all of its major counterparts today. EUR/USD rallied to trade above its key 38.2% Fibonacci retracement level (of the decline from October highs to January lows) after rebounding from the base of its daily ichimoku cloud.

U.S. equities finished higher after a negative start to the day with the DJIA closing the session up by about +0.26% while the S&P 500 edged higher by around +0.20%. Commodities gained on the back of a weaker USD with the precious metals gold and silver currently higher by about +1.51% and +1.63% respectively while crude oil advanced by nearly +1.91%. UST yields rose across the curve as risk sentiment was supported and the 10-year Treasury yields are currently up 6.8bps to around 1.975%.

There is relatively light economic data flow due out tonight with Japan’s December current account figures and January Eco Watchers survey as the only significant scheduled releases.

Australian Trade And Building Permits - Impact On AUD/USD

Release: AUS Trade Balance (Dec)
Flash Reading: 1.22B
Previous: 1.38B
Date/Time: 01/31/12 7:30PM ET (03:30 GMT, 02/02)
Release: Australian Building Approvals (Dec)
Consensus Forecast: 2.1%
Previous: 8.4%
Date/Time: 02/01/12 7:30PM ET (00:30 GMT, 02/02)

Global Manufacturing Rebounds in January, How Did Aussie Trade Do in 4Q
Today's global manufacturing reports were generally positive. When you average the major PMIs, they edged up to 51.4 from 50.5 in December, JP Morgan says. That shows that industrial production picked up after a lull in the 4th quarter. More production is good for Australia's export sector, as it has plenty of raw materials - iron ore, coal - to ship to developing nations like China and India.

Australia's terms of trade has been a major strength for the Australian Dollar. The trade balance has been in surplus 19 out of the last 20 month, and is a major reason that the Australian economy has been able to weather some soft domestic demand and a cooling housing sector.

A surplus of A$1.22 billion is expected, which would be the lowest reading in 9 months. A positive surprise would have a positive impact on Australian equities, and can help boost the value of the AUD.A negative surprise would perhaps undermine the recent Aussie gains, and give the AUD/USD pair a chance to retrace its steps from its highs in the NY session.

Australian Housing Facing Tailwinds, How Will Permits Hold Up?
Speaking of the housing market, Australia also releases its latest reading on building permits. Permits are expected to rise 2.1% in December, following an 8.4% increase in November.

That would mean a slowdown in constructions, and the possibility of an undershoot is strong considering the weaker data seen in both housing prices and new home sales that came out in the Wednesday's Asian session.
From Bloomberg: 'Australian house prices plunged by the most on record in 2011 as global economic uncertainty and concerns about its impact at home kept a lid on demand.

An index measuring the weighted average of prices for established houses in eight major cities slid 4.8 percent from a year earlier, according to the Australian Bureau of Statistics, the biggest calendar-year drop since the data began in March 2002.

They fell 1 percent in the three months to December from the previous quarter, when they retreated a revised 1.9 percent. The median estimate of 15 economists surveyed by Bloomberg News was a 0.6 percent quarterly fall.'

'Sales of new homes fell a seasonally adjusted 4.9 percent in December, with detached house sales dropping 7.7 percent, a separate report from the Housing Industry Association showed.'

Falling housing prices are a sign of a weak housing market where supply exceeds demand. The RBA cut interest rates twice at the end of 2011, and so there should be some positive lift on housing from that, and there still remains a structural shortage of housing in the country

Still, the run up in prices in Australia over the last 20 years has been quite massive, and therefore the sector may still only be in the beginning stages of a peak in the housing market. The image above runs through 2010 (click for larger image) and gives you the sense of how inflation prices have gotten compared to the average income.

Building permits data will be another key gauge as to the health of the housing market in Australia and can help impact equities as well as the decision that the RBA will make regarding interest rates when it next meets on February 7th.

And What's Next for Aussie?

In the bigger picture, we are intesly interested in what happens next for the AUD/USD and today's reports can be an important risk event. Overtly negative readings can be a catalyst for a decline in the pair, while better than expected data can help push the pair to test key resistance levels from the 2nd half of 2011.

The pair has had an impressive run since mid-December, and now approaches a key critical level from late August and late October at 1.0750. The daily RSI is also approaching 'overbought' levels, though it has maintained its rally since hitting the '70″ level 2 weeks ago.

Stocks Higher On Signs Manufacturing Is Strengthening

Asian Markets are set to open higher after U.S. stocks advanced, snapping a four-day decline in the Standard & Poor's 500 Index, amid signs that manufacturing across the world is strengthening.
The S&P500 rose 1324.09 points, or 0.89%, to close at 1324.09 sectors closing in the green. The Dow Jones Industrial Average finished 83.55 points higher, or 0.66%, at 12716.50, while the Nasdaq gained 34.43 points or 1.22%.

Equities rallied after data showing manufacturing in the U.S. grew at the fastest pace in seven months. Factory indexes in China improved and a U.K. manufacturing gauge jumped to an eight-month high. In Germany, output grew for the first time since September. Manufacturing contracted less than initially estimated in the euro region. A spokesman said Greece expects to complete talks on a private sector debt swap and a second international financing deal for the country in the next days.

The euro rose against the dollar for the first time in three days as a purchasing managers' index of manufacturing output in the region beat analysts' estimates, adding to signs Europe's economy is stabilizing.

The Euro climbed 0.6% to $1.3161
Oil declined to a six-week low after the Energy Department reported U.S. inventories climbed more than expected and gasoline demand tumbled to a 10-year low. Crude oil for March delivery fell 87 cents to $97.61 a barrel.

Gold rose as the dollar slipped against the euro and on strong global manufacturing data, while analysts said profit-taking could pressure the precious metal after its biggest January gain in 32 years. U.S. gold futures for April delivery settled up $9.10 at $1,749.50 an ounce.

Asian Market Update

NZ reports trade surplus; Yen continues to strengthen

Economic Data

(NZ) NEW ZEALAND DEC TRADE BALANCE (NZ$): +338M V -50ME (1st surplus in 5-months)
(JP) JAPAN DEC RETAIL TRADE M/M: 0.3% V 0.4%E; Y/Y: 2.5% V 2.1%E (16-month high); LARGE RETAILERS' SALES Y/Y: % V -0.6%E
(JP) JAPAN DEC NATIONAL CPI Y/Y: -0.2% V -0.2%E; CORE Y/Y: -0.1% V -0.1%E; JAPAN JAN TOKYO CPI Y/Y: -0.3% V -0.4%E; CORE Y/Y: -0.4% V -0.3%E
(KR) SOUTH KOREA JAN CONSUMER CONFIDENCE: 98 V 99 PRIOR
(KS) SOUTH KOREA FEB BUSINESS SURVEY - MANUFACTURING: 81 V 79 PRIOR; NON-MANUFACTURING: 79 V 79 PRIOR
(SG) SINGAPORE Q4 URA PRIVATE HOME PRICES Q/Q: +0.2% V 1.3% PRIOR
(JP) JAPAN BOJ DEC 20-21 BOARD MEETING MINUTES
(TH) THAILAND DEC INDUSTRIAL PRODUCTION Y/Y: -25.8% V -28.0%E

Markets Snapshot (as of 05:30GMT)

Nikkei225 -0.3%
S&P/ASX +0.4%
Kospi +0.1%
Taiwan Taiex closed
Singapore Straits Times -0.1%
Shanghai Composite closed
Hang Seng -0.1%
S&P Futures -0.3% at 1,312
Feb Gold -0.5% at $1,718/oz
March Crude +0.1% at $99.77

Overview/Top Headlines

Markets were mixed and cautious in the final trading day of the week, US jobless benefit claims rose last week while durable goods beat estimates in December. Markets are also waiting for the release of Q4 GDP from the US. A drop in USD/JPY tested ¥76.90; yen crosses sold into the Tokyo fix but regained back towards US session levels. This strength weighed on exporting names and could trigger repatriation. Japan PM Noda tried to verbally deter the strength calling for "bold" action to stem the yen rise.

Commodities futures were all lower, silver and copper both falling 0.7%, wheat lost 1% while corn shed $2.20. Shares of NEC fell over 7.5% after reporting after the close on Thursday, NEC also said it would have to lay off 10,000 positions and forecasting its 4th consecutive yearly loss. Some attention was returned to the situation in Greece, it was again reported that the sides were close to an agreement but no new details were released. Euro was weaker through most of the session as was the Swissie.

RBNZ Gov Bollard talking after the December trade balance numbers said that the latest rate decision assumes a delay in Christchurch rebuild with a pick up in 2013; Market does not expect rate increase for a year. In the Q&A went on to say there is a 2012 GDP target of 2-3%; Growth expectations have not changed much.

Bank of Japan in their December 20-21st meeting minutes were mostly in agreement that the broader part of the EU economy remains sluggish, including Germany. One sees merit of high yen for domestic demand oriented firms in Japan. Some thought, the latest expansion of asset buying has been effective and there was a need to continue corp bond buying even though there was under subscription.

Speakers/Geopolitical/In the press

(KR) South Korea Govt and Bank of Korea (BoK): Need to redouble efforts to enter new markets as demand from Southeast Asia, China and developed countries for the country's exports is expected to fall
(JP) Japan Fin Min Azumi: MoF staff looking at the trade deficit number to determine if it is temporary
(ID) Indonesia Central Bank Gov: Sees Jan CPI 0.6-0.7% m/m and 3.5% y/y; Sees 2012 CPI at 5.2-5.5% y/y if fuel subsidies are imposed
USD/MYR: (MY) Former Malaysia PM Mahathir Mohammad said the world's biggest economies could return to a Bretton Woods-style currency system due to quantitative easing measures by major central banks - US financial press

Equities

Samsung Electronics, 005930.KR: Reports Q4 Net KRW4.0T, Op Profit KRW5.3T v KRW5.2Te, Rev KRW47.3T v KRW47Te
WPL.AU: Started taking indicative bids for a large fraction of its 50% stake in the Browse gas project; Could exceed A$1.0B for the stake - The Australian
DCM: Reports 9-month Net ¥395B v ¥443.9B y/y, Op Profit ¥743.8B v ¥758.5B y/y; Rev ¥3.17T v ¥3.2T y/y
HMC: Reports 2011 global vehicles sales -20.2% y/y to 2.9M units
TM: Reports 2011 global production -9.1% y/y to 6.9M units
NSANY: Reports 2011 global output +14.3% y/y to 4.6M
Kia Motors, 000270.KR: Reports FY11 Net profit KRW3.5T v KRW2.3T y/y; Op profit KRW3.5T v KRW1.7T y/y; Rev KRW43.2T v KRW23.3T y/y
LPL: Reports FY11 Net loss KRW991B v loss KRW842Be; Op loss KRW1.25T v loss KRW910Me; Rev KRW23.5T v KRW24Te

US Equities

SBUX: Reports Q1 $0.50 v $0.49e, R$3.44B v $3.3Be; Raises FY12 $1.78-1.82 v $1.83e, Affirms Rev +10%; Q1 non gaap op margin 16.2% v 17.0% y/y; margin contraction was due to higher commodity costs; -2.1% afterhours
JNPR: Reports Q4 $0.28 v $0.28e, R$1.12B v $1.1Be; Guides Q1 $0.11-0.14 v $0.26e, R$960-990B v $1.1Be; -8.1% afterhours
RVBD: Reports Q4 $0.25 v $0.24e, R$204M v $201Me; Guides Q1 $0.19-0.20 v $0.25e, R$183-187M v $197Me - conf call; -13.8% afterhours
RHI: Reports Q4 $0.30 v $0.31e, R$973M v $986Me; -3.9% afterhours
DV: Reports Q2 $0.85 (ex items) v $1.00e, R$524M v $536Me; -8.7% afterhours
AMGN: Reports Q4 $1.21 v $1.22e, R$3.97B v $3.9Be; +1.0% afterhours
KLAC: Reports Q2 $0.72 v $0.66e, R $642M v $631Me; Guides Q3 $1.00-1.18 v $0.82e, R$770-830M v $684Me; +3.7% afterhours

FX/Fixed Income/Commodities

PKX: Considering lowering the capacity of planned mill in India from 13M ton/year to 8M ton/year
GLD: SPDR Gold Trust ETF daily holdings rise by 1.5 tons to 1,261.1 tons (highest since 1,267.9 on Dec 21st)

Profit Taking Halts Rally

U.S. Dollar Trading (USD) stocks rallied in Europe but some weak US housing data prompting a reversal in the New York session on profit taking across the markets. December New Home Sales fell -2.2% vs. a 2.3% forecast. The weekly jobless claims came in near forecasts at 377k vs. 370k expected. In US stocks, DJIA -22 points closing at 12734, S&P -7 points closing at 1318 and NASDAQ -13 points closing at 2805. Looking ahead, Q4 GDP forecast at 3% vs. 1.8% previously. January Consumer Sentiment forecast at 74.1 vs. 74 previously.

The Euro (EUR) the EUR/USD moved to the 1.3180 resistance level in Europe overnight buoyed higher by reports of some progress in the Greece debt deal negotiations and the large rally in US stocks the post FOMC meeting. Profit taking hit during the US session and the major retreated back to 1.3100 support. Looking ahead, ECB President Draghi speaks.

The Japanese Yen (JPY) the USD/JPY continued to retreat in the risk off environment overnight with Y77.50 support giving way and the major sliding to Y77.30. EUR/JPY topped out above Y102 before falling back under Y101.50. AUD/JPY performed well in Europe with the market moving to Y82.75 highs before finding support at Y82 in Asia this morning. UPDATE January CPI at -0.4% vs. -0.3%.

The Sterling (GBP) Cable enjoyed new highs above 1.5700 but came under pressure after weaker than expected December CBI Retail Sales data showed a slump to -22 vs. +6 in previously. The weakness in the consumer outlook is making the UK recovery outlook more uncertain going forward. EUR/GBP rallied to month highs on the weak data but reversed with the EUR/USD back to 0.8350 support.

Australian Dollar (AUD) the AUD/USD made an attempt at the 1.0700 key resistance before reversing back to lower 1.0600 region in the US session. The Asia session was very quiet with the Chinese markets still away on New Year holidays and the Australian market closed for Australia Day celebrations. Support is seen at 1.0580 previous resistance.

Oil & Gold (XAU) Gold dipped towards $1700 before rallying to $1730 fresh highs in the US session. Oil broke above $100 but a sharp rally to $101 was reversed back below $100 by the end of the trading session.