Asian Market Update

Asian equity markets traded to the upside after smooth bond auctions in Spain and Italy overnight. Shanghai fell nearly 2% after forex reserves fell for the first time in 14 years to $3.18T. The decline in China's fx reserves comes amid indications that the country had capital outflows in Q4. In Oct, PBoC data showed that China's banking system's forex purchase position declined for the first time in 4 years, which was a warning of possible outflows, as fx purchases are sometimes used to sterilize inflows. In a follow up a SAFE official said that fx reserves declined as a result of debt repayments; the reserves may continue to decline on outflows. China SAFE Deputy Gov Yi Gang expects that China will have a smaller net forex inflow in 2012.

Japan's Inpex gained 1.5% after it approved LNG project in Australia with Total, total investment of $34B. Australia names Rio Tinto and BHP both gained more than 1%. Copper futures fell 0.9% to $3.62, silver lost 0.8% to $29.87. Japan PM Noda shuffled his cabinet after several of his ministers made comments that enraged the public, key posts were unchanged. Euro was mostly steady with some modest movement to the upside, yen was unchanged against the dollar ¥76.75 while A$ shifted up and down, NZ$ lost about 20 pips to the greenback, $0.7914.

Peru and South Korea kept their interest rates unchanged, while Chile in a surprise move cut their rate by 25bps to 5.00%. BoK Gov Kim said that the reserve ratio can be used as a policy tool but only has a short term impact on liquidity and cannot replace the interest rate for policy. There was some Korean press speculation that Kim could adjust the RRR. He vowed to normalize policy rates further if inflation is seen as "chronic", current inflation expectations are too high, but inflation is likely to slow only at a modest pace.

China Ministry of Commerce reported that 2011 sales of household appliances in rural areas rose 53% y/y to CNY264.1B, however according to All View Consulting, sales of TVs in China's top-tier cities in the first week of 2012 are down 20%. There has been some chatter that China will offer subsidies for appliances in 2012, similar to what was done with cars as a way to boost the slowing economy