China VP Wang promises more cooperation with EU

Asian Market Update: BOJ cuts output assessment following severe industrial drop in October; USD pares gains as China VP Wang promises more cooperation with EU

Economic Data

- (JP) BANK OF JAPAN (BOJ) LEAVES OVERNIGHT CALL RATE RANGE AT 0.0% TO 0.1%; AS EXPECTED; ECONOMIC ASSESSMENT UNCHANGED; DOWNGRADES OUTPUT ASSESSMENT

- (AU) AUSTRALIA OCT CONFERENCE BOARD LEADING INDEX: 0.6% V -0.2% PRIOR (3-month high)

- (JP) JAPAN OCT ALL INDUSTRY ACTIVITY INDEX M/M: -0.2% V -0.2%E (3rd consecutive m/m decline; 3-month high)

- (NZ) NEW ZEALAND NOV CREDIT CARD SPENDING M/M: 0.0% V 0.6% PRIOR; Y/Y: 3.8% V 4.6% PRIOR (3-month low)

- (UK) UK DEC GFK CONSUMER CONFIDENCE SURVEY: -21 V -22E

- (NZ) New Zealand Nov Net Migration: 630 v 640 prior

- (PH) Philippines Nov Budget (PHP): 500M v -10.5B Prior

Markets Snapshot (as of 12:30amET)

- Nikkei225 +1.3%

- S&P/ASX +0.9%

- Kospi +0.9%

- Taiex +0.6%

- Shanghai Composite +1.2%

- Hang Seng +1.2%

- Dec S&P Futures +0.3% at

- Feb Gold flat $1,385/oz

- Feb Crude oil +0.7% $88.66/brl

- Mar Copper +0.3% at $4.22

Overview/Top Headlines

- Asian equity markets are well in the money across the board on a combination of geopolitical and EU-related factors, shrugging an anemic low-volume session on Wall St. High state of alert in the markets elevated by a Korean peninsula standoff was tempered after the North chose not to respond to the artillery drill of the south in disputed waters in yesterday's session. Today, US diplomat Bill Richardson further suggested that Pyongyang has taken a more "pragmatic" stance in the conflict and would allow IAEA inspectors to tour nuclear facilities. Elsewhere, risk-related FX spiked higher following EU-centric comments from a senior China govt officials. Vice Premier Wang noted Beijing will support EU measures to ensure financial stability and called for cooperating to push through G20 decisions. Traders inferred China would keep its pledge to EU with a backstop for its sovereign debt, as speculated in the specific case of Portugal following PM Socrates meeting with PBoC Gov Zhou. Speaking after China Vice Premier, EU's Almunia said he also plans to hold talks with China on increasing bilateral investments. EUR/USD rose 70pips above 1.3190, GBP/USD tested 1.5550, and AUD/USD gained 50pips above 0.9970 following China VP comments. USD/JPY remained contained to a 25-pip range below ¥83.80.

- On the monetary front, BOJ left target rate range unchanged at 0.0-0.1% and kept its economic assessment unchanged, but cut its output assessment. (Recall the Oct final industrial production fell 2.0% m/m - the biggest decline since Feb 2009.) BOJ also reiterated it still anticipates deflationary pressure to abate and corporate CAPEX to improve, but also cautioned corporate profit growth is slowing. In Sydney, the RBA policy meeting minutes retained the dovish tone seen in the Dec 7th statement. Most notably, the minutessuggested policy is on the "restrictive" side following the November rate hike and pointed to disappointing GDP as indication economic growth is softer than expected.

Speakers/Geopolitical/In the press

- (AU) Australia Mine Tax Transition Group: Proposes that all current and future state royalties should be credited in mining tax; Tax profit threshold should stay at A$50M and 30% tax rate

- (KS) North Korea to allow IAEA inspectors to tour facility, ensure the nation is not processing enriched uranium - US diplomat Bill Richardson

- (CH) China top planning agency National Development and Reform Commission (NDRC): China inflation likely to be capped at 3.3% in 2010

- (AU) Fitch comments that 30-day mortgage delinquencies are on the rise in Australia; +2.8% q/q in Western Australia due to most people owning 2 homes and rising interest rates - The Australian

Equities

- TM: Raises 2010 Global Group Sales to 8.4M vehicles v 7.4M guided on Nov 5th; Initial 2011 group global sales target at 8.6M units, +3.0% y/y

- TM: To pay additional $32.4M in fines to settle NHTSA safety investigations regarding the company's recent accelerator-related recall process

- RIO: Most recent storm in Pilbara will reduce iron ore shipments by 500K-1M tons

- PAYX: Reports Q2 $0.37 v $0.35e, R$512M v $511Me; +0.7% afterhours

- JBL: Reports Q1 $0.61 (adj) v $0.54e, R$4.1B v $4.0Be; +4.6% afterhours

- ADBE: Reports Q4 $0.56 v $0.52e, R$1.0B v $988Me; +5.3% afterhours

- DRI: Reports Q2 $0.54 (adj) v $0.54e, R$1.73B v $1.7Be; Board approves additional buyback of 25M shares (about 18% of shares outstanding); Lowers FY11 Rev to 5-6% (guided 5.5-6.5%); -2.6% afterhours

FX/Fixed Income/Commodities

- (CH) PBoC sells 1-yr bills at 2.3437%, unchanged for 6th consecutive week

- (CH) China Iron & Steel Assoc (CISA): China daily steel output for first 10-days of Dec was 1.67M tons v 1.64M tons n last 10-days of Nov - China Daily

- (AU) Australia Govt has declared parts of Pilbara iron ore producing region a natural disaster due to flooding - The Australian

- JGB: Japan's MoF to boost the amount of 30- and 40-yr govt bonds auctioned in FY11 by about ¥1.2T - Nikkei News

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