China officials reject speculation of CNY appreciation as Shanghai Composite leads equity rally; Gold makes new record high

***ECONOMIC DATA***

- (NZ) New Zealand Q3 PPI Inputs: -1.1% v 0.0%e; Outputs: -1.4% v 0.2%e

- (JP) Japan Q3 Prelim GDP Q/Q: 1.2% v 0.7%e; Annualized: 4.8% v 2.9%e (highest since Q1 of 2007 on both figures); Nominal GDP: -0.1% v -0.6%e; GDP Deflator: 0.2% v 0.1%e

- (UK) UK Nov Rightmove House Prices M/M: -1.6% v 2.8% prior (3-month low); Y/Y: 1.6% v 0.2% prior (highest level since May 2008)

- (NZ) New Zealand Sept Services PMI: 49.9 V 51.3 prior (3-month low)

- (CH) China Oct Foreign Direct Investment (FDI) Y/Y: 5.7% v 18.9% prior; Actual YTD Y/Y: -12.6% v -10.9%e (10-month high)

***SPEAKERS/PRESS***

- Asian equity markets are opening the week sharply higher, tracking the positive close in the US on Friday while also benefiting from strong economic data out of Japan and commitment to status quo FX policy from China. Shanghai Composite is leading the rally with a 2.4% rally, S&P/ASX closed up over 1%, and Nikkei225 has entered the final hour of trading up 0.1%. Elsewhere, the Kospi is up 0.8%, while the Taiex and the Hang Seng advanced about 1.5%. Ahead of the Monday US open, front-month S&Ps point to a higher open in continuation of Friday rally, gaining 0.7% to 1,098.

- Over the weekend, comments from Chinese Vice Commerce Minister Chen Jian helped assuage market fears of a tighter monetary policy that sparked some of the profit taking in China markets late last week. Specifically, Commerce official said he did not believe the central bank meant to say that it moving back to a policy of gradual appreciation of the yuan, noting that the ministry is not worried about rising appreciation expectations, but that the yuan should reflect movements in major international currencies. Moreover, Chen forecasted export levels returning to growth in 2010 while urging new measures to encourage overseas investment by Chinese companies. A report out of China's state Information Center also offered a mixed outlook, warning about a "double-dip" slowdown in 2010 if private sector demand is unable to replace government stimulus. China's State Information Center additionally urged PBOC to maintain a moderately easy" monetary policy next year 2010, but also to keep an eye on the pace of increase in asset prices. On a related note, IMF Chief Strauss Kahn reiterated international calling for a more flexible currency, stating stronger Yuan is part of a needed set of reforms in China and would actually benefit the economy by providing greater buying power to households. IMF Chief did reaffirm China's 2009 and 2010 GDP growth forecasts of 8.5% and 9% respectively, but also urged China policymakers to take more steps in slowing accelerating loan growth.

- Japanese economy posted its second consecutive quarter of growth in Q3 with a better than expected preliminary GDP data. Q/Q figure beat estimates of 0.7% at 1.2%, and Annualized GDP came in at 4.8% v 2.9% expected - both levels of growth at their highest levels since early 2007. Despite the strong headline data, analysts remained cautious, pointing to further uncertainty over conditions as fiscal stimulus effects wane as well as some mild deterioration in consumer demand - a large component of the overall economy. Japanese govt officials were also hardly impressed, reaffirming commitment to secondary extra budget totaling as much as Y2.7T, warning about deflationary trends in prices, and pointing to ongoing softness in the labor market.

*** EQUITIES ***

- In individual equities, capital raise reports by some of the Nikkei blue-chips also kept Tokyo under pressure and underperforming on a regional basis despite the strong GDP data. Hitachi confirmed press speculation of an offer of up to ¥418B in new shares and convertible bonds, while also possibly scaling back production of flat-panel TV sets because of declining prices. In financials, Mitsubishi UFJ was rumored to contemplate ¥1T securities offer, and in industrials, Japanese press saw Mistui Chemical considering a Y64.3B share sale of its own. Elsewhere in Tokyo, Moody's downgraded the credit rating on Sumitomo Chemical, Tokyo Steel announced a price increase on some of its steel products, and consumer name Shiseido noted it would not see profit before FY11/12.

- Outside the Nikkei, Taiwan's Innolux merger with Chi Mei Optoelectronics was said to produce one of the global leaders in LCD panel manufacturing. Commenting on the NT$172B deal, WSJ noted the 26% premium to Chi Mei shares as an indication of competition among Asia's major producers of LCD panels as they rush to build market share to take on the rising demand from the Chinese consumer. In other Taiex tech names, local press saw Asustek considering a bid for Toshiba's notebook computer unit, while also commenting on company plans to unveil new products at the next consumer Electronics Show in the US. In Korea tech, local press saw LG Display also expanding its LCD-related capacity, and Samsung Electronics was said to have increased its 2009 flat-panel TV shipment target by 15%. In Sydney, OneSteel saw short-term market demand remaining weak in spite of the stronger levels of residential construction, anticipating steel prices to remain high, but volatile.

*** CURRENCIES/FIXED INCOME/COMMODITIES ***

- In currencies, the greenback remained widely offered across European majors, with risk appetite in equities reducing USD-denominated exposure. EUR/USD and GBP/USD rose to 1.4970s and 1.6730s, up about 50 pips from Friday close. In commodity FX, AUD/USD rose to 0.9350 and NZD/USD advanced to 0.7440, while USD/CAD fell to 1.0460s. Japanese Yen was notably flat against USD around 89.50 despite the equity gains, but did lose ground against European majors as EUR/JPY and GBP/JPY rose to 134.20 and 150.00 respectively.

- Spot Gold and Shanghai Gold prices have each risen to fresh record highs. So far, today's high for spot gold is above $1,130/oz. Gold prices are benefiting from the weakness in the US and advance in Asian equities. Crude oil has gained more than 1% and is trading above $77/bbl on the weaker dollar as rise in risk appetite. Shanghai Copper prices are higher by more than 1%, tracking the weaker dollar and gain in Chinese equities.

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