Toyota, Sony rumored to beat consensus on strong EM demand

Asian Market Update: Australia Q2 PPI tempers expectation for surprise RBA hike in August; Toyota, Sony rumored to beat consensus on strong EM demand

As of 1:30amET:

- Nikkei225 +0.7%

- S&P/ASX +0.7%

- Kospi +0.7%

- Taiex +0.3%

- Shanghai Composite +0.1%

- US S&P Futures +0.2% at 1,102

- Gold Aug $1,191/oz

- Crude oil unchanged at $79.02/brl

Economic Data

- (KS) SOUTH KOREA Q2 PRELIM GDP Q/Q: 1.5% V 1.3%E; Y/Y: 7.2% V 6.9%E

- (JP) JAPAN JUN MERCHANDISE TRADE BALANCE TOTAL ¥687B V ¥691BE; ADJUSTED: ¥456B V ¥539BE; EXPORTS Y/Y: 27.7% V 23.5%E; IMPORTS Y/Y: 26.1% V 24.7%E

- (AU) AUSTRALIA Q2 PPI Q/Q: 0.3% V 0.8%E; Y/Y: 1.0% V 1.5%E (1 year high)

- (SI) SINGAPORE JUN INDUSTRIAL PRODUCTION M/M: -23.4% V -14.0%E; Y/Y: 26.1% V 38.4%E

Overview/Top headlines

- Equity markets are opening the week in rally mode, tracking another session of gains seen in the US on Friday. Risk-related FX majors are also shrugging some mixed regional economic data. A key economic event on the session, Australia Q2 PPI was notably below consensus estimates as fixed income market repriced probability for an early August hike to 25% fom 30%. However, AUD/USD shrugged the post-data decline late in the day, testing 2-month high around 0.8980. Likewise, despite a widespread critique of the EU stress tests as not being sufficiently stringent, the focus on appears to be on diminished uncertainty over the health of the EU banking system. Both EUR and GBP and also in rally mode against the floundering greenback: EUR/JPY rose above 113.40 - the highest level since early June - and GBP/USD hit a 3-month high at 1.5470. Commentary from several WSJ reports on the stress tests appears to be far more scathing. One of the pieces says the "mild assumptions" include EU GDP falling 0.2% this year and 0.6% next year and Spain unemployment rising to 20.3% from current 20% under "adverse scenario" - both under adverse scenario. Moreover, a separate report says the next challenge for EU banks is in fundraising to finance further lending to non-financials, given that EU's reliance on bank lending for financing is substantially heavier than in US, where companies are more willing to tap the capital markets.

Macro/FX

China

FX/Policy:

- (CH) PBoC's Hu Xiaolian: Greater FX flexibility to help China cap inflation and avoid asset bubbles

- (CH) China SAFE: China's excess liquidity may lead to asset speculation

Housing:

- (CH) PBoC Adviser Xia Bin: Warns against implementing property measures too fast as economy already shows signs of slowing in H2 - China Business News

- (CH) China's Finance Ministry Research Director Jia Kang: Property tax will not affect first homes; Sees 2010 fiscal tax revenue rising 13-17% y/y - Chinese press

- (CH) China to carry out stress tests on property trust loans - Economic Observer; In the first half of this year Chinese trust firms issued property trust investment plans totaling ¥67.7B, compared to ¥40B for the whole of 2009.

- (CH) China Ministry of Finance Tax Dept official Yin Boqin: China's property tax may be applied on graduated basis and levied on market value of the property rather than the price paid - Chinese press

Economy:

- (CH) China Academy of Social Sciences (CASS) economist Yang Tao sees 2010 GDP at 9.5-10% range; Expects inflation to remain below 3% as growth slows in H2 - Chinese press

- (CH) China NDRC researcher Zhang Yansheng: Export growth likely to slow in H2 because of weaker EU demand, higher production costs, and inflation expectations - People's Daily

- (CH) China Electricity Council: 2010 power demand to rise about 12% y/y, slow to 5% growth in H2

Australia

- (AU) Australia Treasury Pre Election Forecasts: Reiterates forecasts for FY11 and FY12 GDP

- (AU) Australian mining lobby plans to resume their advertising campaign against the mining tax

- (AU) The Australian warns the progress being made in Panama Canal project may benefit Atlantic-based miners like Vale at the expense of Australian miners

- (AU) Australian banks are expected to proceed with fund raising efforts internationally after the successful completion of the European stress tests - Sydney Morning Herald

- (AU) Australia's Access Economics reports that the Reserve Bank of Australia may be forced to raise interest rates due to increasing inflation pressures - The Australian

Japan

- (JP) Japan Finance Ministry raises quarterly economic assessment in Q1

- Japanese Press

- (JP) Japan Govt Spokesman Sengoku: Asking ministries for a 10% spending cut in the 2011/12 budget; extra budget to be well above ¥1T to stimulate economic sectors with growth potential

- (JP) Japan Fin Min Noda: Hopes EU stress test will calm investor concerns; Debate needed regarding overhaul of tax system, cannot rely on govt debt issuance

- (JP) Japan PM Kan's approval rating fell 2pts to 41%, disapproval rating rose 4pts to 40% - latest Mainichi poll

Korea

- (KS) Bank of Korea Gov Kim: Economy likely to have entered expansionary phase

- (KS) US and South Korea began their 4-day joint war games in the Sea of Japan (east of Korean peninsula) despite opposition from the North as well as from China - Washington Post

Other

- (NZ) New Zealand Unions go up in arms over proposed new labor laws announced by the government - Dominion Post

- (SI) Singapore National Development Min Mah Bow Tan: There is an imbalance in the housing resale market that may take a year or so for prices of resale flats to stabilize - Straits Times

- (VN) Vietnamese smaller banks are struggling to find affordable sources of funds for loans while major banks have an excess of funds due to the central banks limited lending to the interbank market - Tuoi Tre

- (VN) Vietnam's trade deficit for January to July is expected to reach $7.4B v $3.9B y/y - Vietnam press

- (TT) China Banking Regulator (CBRC) to allow Taiwan banks to apply for licenses to set up mainland branches - Commercial Times citing Taiwan's financial regulator

Equities

Australia

- HVN.AU: Reports Q4: FY Sales +0.8% y/y; SSS -3.4% y/y

- QBE.AU: Guides H1 Net down about 40% y/y; Gross premiums A$6.9B, +20%

- ROC.AU: Reports Q2 output 8.2K BOEPD v 8.7K BOEPD q/q

- WES.AU: Reports Q4 Coles unit +5.5% to A$7.5B; FY +4.3% at A$29.8B

- CBA.AU: CEO Norris: Says NAB claims are "rubbish" and that the comments are a result of NAB's "poor" performance in the mortgage market - Australian

- FMG.AU: CEO Forrest is going to take a less active role in the company in the near future and will be replaced by Worley Parsons - The Australian

Japan

Automakers:

- TM: May post Q1 Op profit about ¥100B (profit ¥82Be, loss ¥195B y/y) - Japanese press (update)

Tech:

- SNE: May report Q1 Op profit of ¥10-30B (¥2Be, loss ¥37B y/y) - Japanese press

- Fujitsu Ltd to begin selling low-end PCs in Asia and N America in FY12 - Japanese press

- Sharp Corp providing smartphones to AT&T that are capable of receiving video transmitted using MediaFLO technology - Japanese press

- Fuji Electric Holding may raise its investment in semiconductor business by about 20% to ¥12B - Japanese press

Financials:

- Mizuho, Sumitomo Mitsui Financial, and Mitsubishi UFJ each may have exceeded ¥100B in profit for the quarter ended June - Japan press

- Softbank Corp denies press speculation that it may report ¥190B op profit in Q1 (¥133Be)

Other:

- NTT DoCoMo to increase supply of Xperia smartphone by 200k units by the end of July to meet increase in demand; FY sales goal of 1M units - Japanese press

- Sanyo Chemical raises FY10/11 guidance to Net ¥5.1B, Op Profit ¥8.6B, Rev ¥133B (prior Net ¥3.8B, Op Profit ¥6.6B, Rev ¥127B)

- Daiichi Sankyo denies press speculation that it is forming a joint venture with Kitasato Institute Research Center to increase vaccine production

China

- China State Construction Holdings awarded HK$3.0B contract from Hong Kong Government

- HSBC, Sedco in a consortium are close to signing a deal to fund the £600M Pinnacle skyscraper in London - Times

- China Resources Power reportedly going to issue benchmark size dollar bond due in 2015

- BIDU: In talks with mobile phone makers about using its search box on handsets sold in China; Also considering listing in China with no time line given - WSJ

- PTR: Increases 2010 Sulige gas output to 10B cubic meters

- Citic Resources put in an application to spin off Citic Dameng, its manganese unit; Assets being spun off are in China and West Africa; No set date for the spin off as of yet

Korea

- Hyundai Motor Vice Chairman Chung Eui-sun: Company's H2 outlook for sales does not seem "rosy" - Korean press

- Kookmin Bank nominated Min Byong-duk as the next CEO; Names Lim Young-rok President

- Korea Exchange Bank company expected to pay its first interim dividend - Korean press

- (KS) According to South Korea Finance Ministry officials, both KB Financial and Woori Finance will report Net losses in Q2 on rising bad loans for construction projects - Korean press

Commodities

- XAU/USD: WSJ citing analysts argue against a sharper decline in Gold prices in coming weeks

- (CH) China is aggressively developing its own LNG reserves which will drastically reduce the need to import by 2020 - FT

- (CH) China govt to limit output of certain kinds of non-ferrous metals to 41M tons by 2015 - China Securities Journal citing industry association

- (CH) China NDRC: CNOOC H1 gas output rose over 30%; Sees output as stable

Published on Mon, Jul 26 2010, 09:29 GMT

A couple of Polish numbers were released on Friday

Review

• A couple of Polish numbers were released on Friday. Retail sales surprised on the upside, growing 6.4% y/y in June compared with the consensus expectation of 4.1% y/y. Unemployment dropped a bit in June to 11.6% from 11.9% in May. Both numbers confirm that the recovery in the Polish economy continues and that rate hikes have moved closer.

• Friday brought more bad news regarding the situation in Hungary as the two rating agencies Moody’s and Standard & Poor’s both came out with warnings that they could downgrade Hungary’s credit rating on the back of the breakdown of talks between the Hungarian government and EU/IMF. Unfortunately, the Hungarian government once again demonstrated that it does not seem to take the concerns of investors, lenders and rating agencies seriously as Economics Minister Gyorgy Matolcsy said that the rating agencies “don’t understand” that fiscal responsibility needn’t come at the expense of independent economic policy. Telling rating agencies that they don’t understand is not going to do much for the credibility of economic policy in Hungary.

Preview

• Not much on the agenda today in the region other than Hungarian retail sales. We expect the Hungarian retail sales numbers to confirm that the Hungarian economy and domestic demand in particular continues to be very weak.

Scorecard-based trade of the week Buy CZK/ZAR

• The Hungarian forint once again was the big loser on Friday as the warnings about possible downgrades hit the Hungarian markets. We remain bearish on the forint and EUR/HUF could easily move above 300 soon if the Hungarian government does not take action to reassure investors that it is serious about getting back to negotiations with the IMF and EU.

• On Friday we recommended investors to buy CZK/ZAR based on the scores in our EMEA FX Scorecard. We keep that trade open and with EUR/USD inching up towards 1.30 again, the trade is getting a bit more tailwind. In our view, we could be heading for a larger negative correction in the South African rand sooner rather than later.

Bull buys call spread as Arena Pharmaceuticals' shares soar

ARNA - Arena Pharmaceuticals, Inc. – Shares of the clinical-stage biopharmaceutical company shot up 10.7% today to an intraday high of $5.89, inspiring one options strategist to purchase a debit put spread in the October contract. Arena’s shares have increased significantly since an FDA advisory panel said it does not recommend rival Vivus’ obesity drug, Qnexa, receive FDA approval. The bullish options investor prepared for continued upward movement in Arena’s shares by purchasing 3,000 now in-the-money calls at the October $5.0 strike for a premium of $2.45 each, and selling the same number of calls at the higher October $7.0 strike at a premium of $1.45 apiece. The net cost of the transaction amounts to $1.00 per contract. Thus, the trader is prepared to make money should the biopharmaceutical firm’s shares rally 1.85% over the current price of $5.89 to trade above the effective breakeven price of $6.00 by October expiration day. The investor walks away with maximum potential profits of $1.00 per contract if Arena’s shares surge 18.85% to exceed $7.00 by expiration. In the nearer-term September contract, another bullish player opted to sell 2,700 puts at the September $2.0 strike to take in an average premium of $0.30 per contract. The put seller keeps the premium received on the transaction as long as Arena’s shares trade above $2.00 through expiration day in September. Options implied volatility on ARNA is higher by 14.1% to 101.05% as of 2:55 pm (ET).

CQB - Chiquita Brands International, Inc. – Call buying on the international marketer and distributor of bananas and fresh produce continues today with shares of the underlying stock trading higher by 3.15% to stand at $13.10 as of 1:20 pm (ET). Bullish traders started to buy November $12.5 strike calls yesterday afternoon as Chiquita’s shares rallied nearly 5.5% to end Thursday afternoon at an intraday high of $12.72. The company’s shares continued their ascension today, inspiring investors to build up bullish stances on the stock ahead of the second-quarter earnings report next Thursday. Investors purchased approximately 3,000 calls at the November $12.5 strike by 1:25 pm (ET) for an average premium of $1.73 apiece. Call buyers make money if Chiquita’s shares increase another 8.6% to surpass the average breakeven point at $14.23 by November expiration. Traders buying the calls on Thursday have a clear first-mover advantage because they paid an average of $1.52 each for the November $12.5 strike calls, which is $0.21 less than today’s call coveters paid for the same contracts. The demand for call options on Chiquita Brands International lifted the overall reading of options implied volatility 4.7% to 56.28% just before 1:30 pm (ET).