Asian Market Update

New Zealand emerges from 5 quarters of recession; Obama, Hu downplay protectionism worries, bypass talks of USD as global reserve; BHP positive on metal demand from China

ECONOMIC DATA

(NZ) New Zealand Q2 GDP Q/Q: 0.1% v -0.2%e; Y/Y: -2.1% v -2.6%e

(AU) Australia Q2 Avg Enterprise Wages: 3.9% v 4.6% prior

(AU) Australia Sep DEWR Skilled Vacancies M/M: 1.2% v 1.2% prior

(SI) Singapore Aug CPI M/M: 0.4% v 0.3%e; Y/Y -0.3% v -0.4%e

SPEAKERS / FIXED INCOME / FX

Asian equity markets are trading mixed on low volume, with Tokyo on break for third consecutive day in celebration of the first day of autumn. Indices in Australia and Taiwan are the outliers, with the 1.3% rally in the former balanced by a comparable decline in the latter. Shanghai Composite traded about 1% on both sides of 2,900 before entering midday break unchanged around those levels. Korea and Hong Kong are moderately lower, falling 0.7% and 0.3% respectively. Ahead of the FOMC decision day on Wall St., front-month S&Ps are off by about a point at 1,066.

New Zealand was again in the spotlight following yesterday's current account surplus report as its economy emerged out of recession in Q2 after 5 consecutive quarters of negative growth. NZ Finance Minister English said the economy has passed the bottom of the trough, urging officials to now address a more sustainable recovery.

Ahead of the G20 summit, US President Obama met with China's President Hu, pledging that in spite of the recent tire tariff decision, US remained committed to free trade policies. In turn, Hu noted that China and US are developing a positive relationship. Leaders were also said to have omitted talks regarding an alternative to US Dollar as the global reserve currency. Back on the mainland, PBOC Governor Zhou suggested monetary policy should be adjusted to fit the needs of economy, targeting strong employment and also ensuring currency stability. Chinese press also issued a relatively dovish report, noting that China is not expected to see a pick-up in inflation over the coming months. In other regional developments, Barclays upped its GDP forecasts for Taiwan and South Korea, raising 2009 and 2010 Taiwan GDP to -3.5% and 6% and Korea's 2009 and 2010 GDP to -0.5% and 5%.

EQUITIES

BHP Chairman Kloppers cheered signs of global economy stabilizing, forecasting for China to remain a major source of commodities demand from ongoing strength in construction activity. The company is also said to be considering a sale of the Ravensthorpe nickel mine. Rio Tinto saw steady pace of declines in global diamond reserves, forecasting a rise in sales over 2H, with demand exceeding supply over the long term. AWB announced a A$459M equity capital raise, also guiding FY09 EBITDA from continuing operations A$160-175M v A$176Me. In New Zealand, Fonterra confirmed final 2008/09 payout of NZ$5.20/kg of milk-solids, also posting FY09 Underlying EBIT NZ$890M (+20% y/y) on revenue of NZ$16B v NZ$19.5B y/y

Outside the Asia-Pacific region, Hynix opened down by over 3% following letter of intent from Hyosung Corp to gain control of the company. In Taiwan, local press reported that new Intel technology could benefit chipmakers TSMC and UMC and chip packager ASE, while India's Dr. Reddy was named as a potential acquisition target for GlaxoSmithKline.

CURRENCIES

In currencies, Kiwi Dollar continued to outperform the other majors, spiking higher in the wake of the recession-ending positive GDP print. NZD/USD hit a fresh 13-month high above 0.7240, NZD/JPY was at 11-month highs above 66.00, and AUD/NZD fell to 5-month lows below 1.2080. US dollar spiked lower across the board at the start of Asia trading, also hitting fresh multi-month lows against EUR, AUD, and CHF. EUR/USD rose as high as 1.4840, AUD/USD rallied above 0.8780, and USD/CHF briefly traded below 1.02. Japanese Yen also rallied against the dollar, with USD/JPY falling to 90.50. JPY traded mixed in the crosses, gaining vs EUR and CHF, but falling against NZD and AUD. Sterling once again pared some of its recent losses, rising above 1.64. Earlier, CBI put out a mixed report on UK GDP prospects, raising it Q3 view to +0.3% from -0.3% but cutting Q4 outlook to -4.3% from -3.9%. In terms of monetary policy forecasts, CBI saw interest rates starting to rise by the spring of 2010, reaching 2% by the end of the year.

COMMODITIES

Crude oil prices are lower by more than 0.10% and have so far traded between $71.81-71.13/bbl. Oil prices are being weighed down by the bearish weekly US API inventories data (API PETROLEUM INVENTORIES: CRUDE: +275K V -1.4ME; GASOLINE: +3.82M V +500KE) which comes ahead of the later today release of the US Department of Energy's weekly inventories report. Spot Gold prices are higher by more than 0.10% on the weaker dollar. Overall, the key event risk for commodity markets is expected to be the later today release of the US Federal Reserve's FOMC statement.

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