Asian Market Update

Asian Market Update: The BoJ’s Q3 Tankan suvey came in mixed. The large manufacturers component (Q3 TANKAN LARGE MANUFACTURERS: 23 V 21E (23 PRIOR)) and the large all industry CAPEX (Q3 TANKAN LARGE ALL INDUSTRY CAPEX: 8.7% V 7.5%E (7.7% PRIOR) ) components were better than expected. However the large manufacturers outlook component came in worst than expected (OUTLOOK: 19 V 20E (22 PRIOR) and the non-manufacturing components of the survey also came in soft (Q3 TANKAN NON-MANUFACTURING: 20 V 21E (22 PRIOR); OUTLOOK: 21 V 21E (23 PRIOR)). Following the release of the Tankan, Bank of America reiterated its call for a 25 bps rate hike by the Bank of Japan in December. In terms of market reaction, the Tankan had a muted affect on yen trading, while equities rose following the data. Despite the strong tankan reading, both the 10 yr and 2 yr Japanese government yields are lower. In other Japanese data, Aug labor cash earnings rose for the first time since November of 2006 (AUG LABOR CASH EARNINGS YOY: 0.1% V -1.7% PRIOR; OVERTIME EARNINGS YOY: 1.2% V -0.1% PRIOR).

Forex: The JPY is weaker across the board on carry trades (USD/JPY above 115.00). The EUR is lower against the USD (profit-taking), while the GBP/USD pair is off by more than 0.09% (profit-taking). The NZD and AUD are both near session highs against the USD and JPY. During today’s session, the AUD rose to an 18 yr high against the USD (above $0.8900). The CHF is near session lows against the USD, EUR and GBP following reports out of the Wall Street Journal that Swiss bank UBS is expected to report a fixed income related loss of CHF600M-CHF700M. The USD/CAD is higher by more than 0.10% (last traded around $0.9941).

Asian Currencies: The Taiwan dollar (TWD) is higher by more than 0.40% against the USD on reports that the Taiwan central bank will continue to hike rates in order to lower inflationary pressures.

Equities: The Nikkei 225 is higher by more than 0.35% on gains in shares of exporters and banks. The ASX 200 is higher by more than 0.35% on gains in shares of BHP and Newcrest Mining. Over the weekend it was reported that BHP may not seek to bid for Alcoa. The Kospi is higher by more than 1% on gains in shares of LG Philips (positive broker commentary) and LG Electronics (price target raised by a local broker)

Commodities: Spot Gold is marginally higher in Asian trading, but below $750/oz. Crude Oil is little changed in Asia on lower storm threats in the Gulf of Mexico.