Markets on edge as geopolitical tensions rise on Korean peninsula

Economic Data

- (JP) JAPAN NOV NATIONWIDE DEPT. SALES Y/Y: -0.5% V +0.6% PRIOR; TOKYO DEPT. STORE SALES Y/Y: 0.3% V 2.7% PRIOR

- (JP) JAPAN OCT FINAL COINCIDENT INDEX: 100.8 V 100.7 PRIOR; LEADING INDEX: 97.7 V 97.2 PRIOR

- (NZ) NEW ZEALAND NOV PERFORMANCE SERVICES INDEX: 51.4 V 51.2 PRIOR

- (TH) THAILAND NOV TRADE BALANCE: $408M V $1.8BE; Exports y/y: 28.5% v 21.0%e; Imports y/y:35.3% v 16.0%e

- (HU) HUNGARY DEC ECONOMIC SENTIMENT: -7.3 V -7.3 PRIOR; BUSINESS CONFIDENCE: -1.4 V -2.6 PRIOR; CONSUMER CONFIDENCE: -24.1 V -20.8 PRIOR

- (US) Spending Pulse reports holiday mid-season: eCommerce: +13.5% y/y; Apparel: +9.8% y/y; Electronics: +0.4% y/y; Jewelry: +2.6% y/y

Markets Snapshot (as of 12:30amET)

- Nikkei225 -0.8%

- S&P/ASX -0.6%

- Kospi -0.6%

- Taiex -0.5%

- Shanghai Composite -2.2%

- Hang Seng -1.0%

- Dec S&P Futures-0.3 % at 1,234

- Feb Gold +0.9% $1,283/oz

- Feb Crude oil -0.1% $88.51/brl

- Mar Copper +0.4% at $4.17

Overview/Top Headlines

- Asian equity markets are in the red across the board as traders shed risky assets in favor of safe-haven US dollar, treasuries, and gold on renewed conflict concerns in Korea. Originally set to commence on Saturday afternoon, the artillery drill off the disputed Yeonpyeong island began at 05:30GMT. UN Security Council held an emergency meeting but was unable to broker a compromise, as US continued to maintain South Korea's right to hold routine military exercises while China/Russia envoys pushed Seoul for more regional sensitivity. South Korean press reported the island residents have been told to move into air raid shelters, while the North has deployed rocket launchers along the northern border. A separate CNN report saw a former US ambassador to the UN Bill Richardson held talks with the North and has made some progress in bringing Pyongyang back to multilateral talks. Late in the session, Nikkei225, the Kospi, and S&P/ASX were down by over 0.5%. Shanghai Composite led the selloff, at one point slumping by over 3% on fresh inflation-related fears, as China Banking Regulator (CBRC) Chairman Liu warned inflation may continue to rise and reach close to 6% in Q1. In currencies, dollar strength saw EUR/USD test 2-week lows below 1.3130, GBP/USD fell as low as $1.5475, and AUD/USD marked support just above $0.9860. USD/JPY briefly tested ¥84, while spot gold gained over $6 to trade above $1,385/oz.

Speakers/Geopolitical/In the press

- (CH) China Banking Regulator (CBRC) Chairman Liu Mingkang: Inflation may rise to near 6% in Q1 of 2011, but govt is able to control it - China Daily

- (KS) South Korea to raise bank taxes in H2 of 2011 to prevent excessive capital flows into the system - Korean press

- (CH) According to a real estate research institute China Index Academy, property prices to rise at a slower pace of 8-10% in 2011 amid tightening measures by the govt - China Daily

- (AU) Australian Property Monitors (APM): Over 50% of properties offered for auction over the weekend failed to sell - Australian Financial Review

- (KS) North Korea agrees to return of nuclear inspectors as part of agreement with US diplomat Bill Richardson - CNN

- (CH) China Govt: Will consider the impact of any monetary policy changes on the stock market when making decisions

Equities

- JASO: CEO: To expand solar-cell production capacity by at least 30% in 2011 - China Daily

- SNE: Exec: Expects to remain profitable in TV business in FY11/12 with sales above those of FY10/11

- Samsung Electronics: Company's Galaxy S handset sales to reach 10M units, becoming 2nd most popular smartphone worldwide - Korean press

- RHC.AU: Raises FY11 NPAT guidance to 22-24% y/y (guided +13-15% y/y on Nov 16th)

- TLS.AU: A$10.8B National Broadband deal will not be completed before the end of the year due to re-writes of part of the NBN business plan - Australian Financial Review

- LEI.AU: May have to revise the value and write down several of its larger investments - The Australian

FX/Fixed Income/Commodities

- (CH) China Ministry of Land and Resources (MOLAR): Will invest CNY100B over 5-years to stabilize food security; Will add an additional grain production capacity of 10M tons every year over the course of the plan - Chinese Press

- (CH) China fuel reserves for Nov +6% m/m; First increase in 9-months - US financial press citing sources

- USD/PHP: (PH) Philippines Central Bank Deputy Gov: Will allow the peso to adjust to higher capital inflows; Flows have not reached concerning levels yet.

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