Asian Market Update: China escalates tensions around disputed islands just as Iran reaches nuclear agreement to ease sanctions
***Observations/Insights*** - Significant geopolitical developments spanning from the Middle East to the East China Sea were in the spotlight over the weekend, influencing the morning trading session in Asia. Beijing amplified nationalist sentiment, declaring an East China Sea area that includes the disputed Senkaku islands as the "air defense identification zone". Under the guidelines issued by the Defense Ministry, all planes entering the area must follow identification rules or risk intervention by the military jets. Japan's foreign ministry quickly responded, denouncing the measures with a formal protest to the minister at the Chinese Embassy in Japan. US Defense Dept and State Dept officials were also vocally opposed to China's move, vowing to protect its regional security partners. China defense stocks are trading higher, with some focus also falling on Japanese exporters potentially suffering from escalated trade tensions. - Iran foreign ministry and P5+1 reached a nuclear deal late on Saturday. As part of the agreement, Iran would receive $4.2B in foreign exchange and face less onerous sanctions on gold, petrochemicals and auto industries. In exchange, Tehran has to halt uranium enrichment above 5% and also cease installing any additional centrifuges or risk more sanctions. Ministers involved in brokering the deal cheered the breakthrough accord for its far-reaching regional security, while Israel called it a "historic mistake" and declared that it would not be bound by its provisions. US Pres Obama reached out to Israeli PM Netanyahu, just as WTI crude oil prices fell over $1 below $93.80/brl.
***Economic Data*** - (VN) Vietnam Nov Consumer Price Index (CPI) M/M: Y/Y: 5.8% v 5.9% prior (lowest since Aug 2012) - (SG) SINGAPORE OCT CPI M/M: 0.2% V 0.3%E; Y/Y: 2.0% V 2.2%E
***Fixed Income/Commodities/Currencies*** - (JP) BOJ offers to buy ¥250B in 1-3yr JGBs, ¥300B in 3-5yr JGBs, and ¥400B in 5-10yr JGBs - (KR) South Korea MOF sells 20-yr govt bonds, avg yield 3.865%
- SLV: iShares Silver Trust ETF daily holdings rise to 10,360 tonnes (lowest level since 10,284 on Jul 23rd) from 10,404 tonnes - GLD: SPDR Gold Trust ETF daily holdings fall 4.5 tonnes to 852.2 tonnes (lowest since Feb 2009)
- AUD and JPY are being aggressively sold against the greenback, with the respective technical breakdowns to multi-month lows accelerating the response to recent fundamentals of jawboning by the RBA and continued dovish stance at the BOJ. AUD/USD is down nearly 50pips below $0.9150 - lowest levels since early Sept. USD/JPY is at its highest level since late May, rising above ¥101.80. Despite the weakness in the Aussie, NZD/USD is marginally higher, rising about 30pips above $0.8210
***Speakers/Political/In the Papers*** - (CN) Beijing announces China military is setting up an "air defence identification zone" over East China Sea area that includes the disputed Senkaku islands - financial press - (CN) According to International Finance survey, 17 cities out of 32 in China have temporarily halted mortgage loans - financial press - (CN) China Hebei Province cut iron and steel overcapacity by more than 11Mt on a single day - Chinese press - (CN) China may include Guangdong, Tianjin in free trade zone (FTZ) trial - Chinese press
- (JP) Japan Dep Chief Cabinet Sec Kato: Japan will firmly, calmly defend its territory - financial press - (JP) Japan PM Abe: China's recent airspace declaration is dangerous, expresses concern - addressing parliament - (JP) S&P: Japan long-term credit quality continues to weaken; Tax hike and stimulus are near-term positive - (JP) Japan Vice Fin Min Furusawa: Japan deflation is coming to an end
- (KR) South Korea Ministry of Knowledge Economy: Oct industrial electricity sales rose 8% y/y to 22.4B kwh - Korean press - (KR) Bank of Korea (BOK): Q3 corporate lending rose by KRW13.1T q/q to KRW825.7T; Biggest increase in 3 years - Korean press - (KR) Moody's: South Korea's rising household debt is credit negative for financial system - (KR) South Korea Fin Min Hyun: South Korea economy is at a critical junction; Momentum for recovery is gaining - financial press
- (NZ) ANZ Bank economist: RBNZ may raise benchmark interest rates as early as January - (NZ) Westpac: Sees New Zealand Q3 GDP around 1.4%, up from 1.2% prior forecast - financial press
- (EU) Germany Fin Min Schaeuble: There are no longer any risks of contagion in the eurozone - German press - (EU) ECB Pres Draghi has returned a proposal to alter sovereign debt risk-weighting to advisers for more work - German press - (EU) ECB's Coeure (France): Recent ECB rate cut not due to any indications of deflation developing in the euro zone - financial press - (EU) ECB's Asmussen (Germany): ECB prepared to take further action if conditions demand it - German press - (GR) IMF's Greece envoy Thomsen: Greece needs to find further savings for 2014-16 but may avoid across-the-board cuts - financial press
***Equities*** Market Snapshot (as of 04:30 GMT): - Nikkei225 +1.3%, S&P/ASX +0.4%, Kospi +0.8%, Shanghai Composite +0.3%, Hang Seng +0.2%, Dec S&P500 +0.3% at 1,806, Feb gold -0.4% at $1,240, Jan crude oil -0.9% at $94.03/brl
US markets: - JNY: Sycamore said to be in advanced discussions to acquire Jones for less than $16/shr - financial press - BA: Said to have selected possible US sites for the production of the 777x - financial press
Notable movers by sector: - Consumer discretionary: Fast Retailing Co Ltd 9983.JP +2.3% (to list in Hong Kong); Ningbo Construction Co Ltd 601789.CN +10.0%, Ningbo Marine Co Ltd +10.0%, Ningbo Fuda Co Ltd 600724.CN +10.1% (Zhoushan free trade zone trial); Neway Group Holdings Ltd 55.HK +8.3% (H1 results) - Consumer staples: Warrnambool Cheese & Butter WCB.AU +2.4% (Saputo increases offer) - Industrials: Lend Lease Corp LLC.AU +1.4% (to start a China-focused property fund); Tianjin Port Development Holdings 3382.HK +3.5%, Tianjin Songjiang Co Ltd 600225.CN +10.0%, Tianjin Jinbin Development Co 000897.CN +4.5% (Tianjin free trade zone trial); James Hardie Industries NV JHX.AU +3.6% (shares repurchase plans); Jiangxin Hongdu Aviation 600316.CN +7.6%, China Spacesat 600118.CN +4.3%, China Avic Electronics Co Ltd 600372.CN +7.6% (on China airspace declaration) - Energy: Sinopec 386.HK -2.3% (pipeline explosion); Enviro Energy International Holdings 1102.HK +8.8% (distribution agreement) - Utilities: Yaskawa Electric 6506.JP +1.4% (China expansion plans)