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Asian stock market, economy and companies update (June 21, 2010)

Contributed by Trade The News

By Trade The News

- Asian equity market enter the new week on a firm footing following a surprise announcement by the PBoC to move to a more flexible stance on Yuan. The rationale for the timing is unclear given the political pressure for currency reform from Washington with one week ahead of the G20 meeting in Toronto. Chinese officials maintain that revaluation is the result of economic recovery, with no direct link to G20 summit, all despite a set of commentary from several Chinese govt officials acknowledging uncertainty from European fiscal crisis just last week. Regardless of the true motivation in Beijing, currency flexibility has translated directly into resurgence of risk trade, as Nikkei225, Shanghai Composite, and the Taiex are up about 2%, while S&P/ASX and the Kospi gained over 1%. Front-month S&Ps are also up 1.3%, rising 16 handles to 1,126. Meanwhile, the daily Yuan mid-point setting acquires a new level of significance as markets become more sensitive to the promise of higher CNY as evidenced in today's session, when unchanged USD/CNY setting of 6.8275 tempered early risk appetite.

SPEAKERS/PRESS
- CHINA: Several China officials reflected on the announcement on more Yuan flexibility by the central bank. PBOC Advisor Li said the move is a 'normalization' of the currency, PBOC advisor Li noted the currency movement will be gradual, and PBoC Adviser Li Daokui suggested the decision to abandon USD peg and move to more flexible Yuan valuation reflects policymakers' confidence regarding China and global recovery. In the region, govt officials from Japan, Singapore and Korea - all economies whose export-dependent economies stand to benefit from stronger Yuan - have also voiced support for China currency announcement.

- JAPAN: Local press noted the govt may raise FY10/11 GDP forecast to 2.6% from 1.4% this week because of strong Asia exports and stimulus measures boosting consumption of autos and electronics. The govt, also expected to announce its growth strategy plan at the G20, still remains in limbo over an increase in consumption tax from 5% to 10% - constrained by campaign promise to maintain tax code unchanged despite the popular support for a hike. Separately, Fitch said Japan's rating may come under downward pressure if it has no credible fiscal plans by year-end, but Japan is still far from being in the same category as EU countries.

- KOREA: A hawkish set of comments from the Bank of Korea suggested the primary reason policymakers have not moved on interest rates may be behind the fiscal turmoil in Europe. BOK Gov Kim said inflation is on the rise and expansion in economy would continue, warning that inflationary bubbles may emerge if rates are kept too low for too long amid expectations of H2 growth exceeding expectations. Elsewhere, Fin Min Yoon said EU turmoil may still delay exit policies from fiscal stimulus steps.

EQUITIES
- In individual names, Australian competition regulator ACCC was reported to announce its decision on BHP/Rio Tinto Pilbara JV on Jul 22nd. In New Zealand, competition regulator gave the green light to AMP for acquisition of Axa Asia Pacific. Also in Sydney, Telstra was sharply higher after reaching an agreement with govt-run NBN to transfer its internet and voice customers for about A$11B. In chip-related names, Elpida was rumored to partner with Taiwan's UMC and Powerchip to develop chip-packaging technology. In Korea, Posco - already higher on Yuan-flexibility related strength - was further boosted after press speculation it would raise prices by close to 9% per ton.

CURRENCIES/FIXED INCOME/COMMODITIES
- European and commodity majors gapped higher at the open, retreated after PBoC daily setting was left at par to that of Friday's, but have since renewed upward thrust with the arrival of European desks driving risk appetite flows. EUR/USD rose to 1.2460, GBP/USD hit a 1-month high above 1.49, and USD/CHF fell to 1.10. Swissy has remained firm despite the resurging risk trade - EUR/CHF hitting record low below 1.37. Commodity FX - particularly the previously heavily sold Aussie - outperformed on exposure to export-related benefit of the Yuan move. AUD/USD and AUD/JPY hit 1-month high at 0.8830 and 80.10 respectively, while USD/CAD fell to 1-month low below 1.0160. Japanese Yen surprisingly rallied at the onset against the greenback, but has since moved to unchanged levels around 90.70. In commodities, front-month crude was also bid above $78.80/brl - up 2.2%. Spot gold maintained a strong tone above 1,260 despite eroded appetite for safe-haven seen in the highly correlated govt bond market.

ECONOMIC DATA

- (NZ) NEW ZEALAND MAY VISITOR ARRIVALS M/M: -1.0% V -1.8% PRIOR
- (UK) UK JUN RIGHTMOVE HOUSE PRICE INDEX M/M: 0.3% V 0.7% PRIOR (3-month low); Y/Y: 5.0% V 4.3% PRIOR
- (AU) AUSTRALIA MAY NEW MOTOR VEHICLE SALES M/M: -3.2% V 9.0% PRIOR (5-month low); Y/Y: 16.4% V 29.1% PRIOR
- (JP) JAPAN APRIL ALL INDUSTRY ACTIVITY INDEX M/M: 1.8% V 2.0%E