Asian Market Update: Wage inflation worries down under boost Kiwi and Aussie - Aussie employment dipped unexpectedly in January (January employment change: -3.6K v +2.5K expected), but the jobless rate hit a new 30-year low of 4.5% (analysts had expected unemployment at 4.6%). December's employment change data was revised up slightly. The drop in unemployment gave the Aussie dollar a lift, as tight labor market conditions may lead to higher wage inflation. Traders should remain cautious about the assumption that lower Aussie unemployment will lead to wage inflation (Last year's data shows that even though Aussie unemployment has steadily been falling, wage inflation has remained low). The central bank will issue its quarterly statement on monetary policy next Monday and analysts assume it will repeat past warnings on labor costs. - Kiwi jobs data boost expectations of a RBNZ rate hike next month: Kiwi Q4 unemployment came in at 3.7%, below analyst estimates at 3.8% and RBNZ governor Bollard's target of 4.0%. Related data showed record wage increases in New Zealand, and the RBNZ seems likely to hike rates at their meeting next month unless there are signs of moderation in domestic demand. (We have already seen signs of slowing domestic demands, after the trade deficit was reduced by more than expected in December) - Asian equities traded mixed, while a drop in energy prices weighed down resource related stocks. BHP shares traded down by 1.5% and Nippon Mining traded down by 1.6%. Asian tech shares got a boost from the strong performance of the Nasdaq and the better than expected results from Cisco Systems. But traders were unwilling to push Japanese tech shares much higher due to the uncertainty of the yen outlook. Technically, the Nikkei was well supported in the morning session by bargain hunting at the 25day moving average, but when this support level was broken the Nikkei moved into negative territory. After setting successive record peaks, Aussie shares traded in the red, but private equity interest in Aussie equities provided support. Shares of mid-cap biotechnology company Peptech climbed after the company said it was exploring private equity options. Australian buyout target Qantas Airways raised its annual profit forecast for the third time in six months as fuel prices ease and demand for travel increases. Shares were up marginally after the announcement, as much of the good news for the stock has already been priced in. - Neutral commentary from the BoJ's Haru (most analysts believe he voted to keep rates unchanged at the last meeting): Haru said the BoJ needs to maintain easy monetary conditions to ensure price stability and sustainable economic growth. Haru hedged his dovish comments by saying that the BoJ need to be careful about sharp price and economic swings that may be caused by being too late in hiking rates. Haru kept markets guessing about his next vote, saying that he had not yet decided how he would vote at the next meeting (scheduled Feb. 20-21). His neutral comments seem to confirm the data dependency stance of the BoJ, with the GDP report scheduled to be released next week (Feb 14). - Traders reduce bets of a Feb rate hike from BoJ: Interest rate futures trading shows that traders now see a 41% chance of a BoJ rate hike during February vs a 46% probability that was priced in during yesterday's session (Credit Suisse data). More significantly, traders are reducing bets on a rate hike despite expectations that Japanese GDP will be sharply above Japan's potential growth rate (Nihon Keizai Shimbun survey of 14 research institutions) - Small business confidence in Australia surges: Australia's small to medium sized businesses (SMEs) showed increasing confidence due to an improvement in consumer confidence and demand. Some 37% of SMEs reported good or very good business conditions, while only 13% reported poor or very poor conditions. - Japanese bonds: In early morning trade, the yield on the 10yr JGB rose on the back of the stronger performance on the Nikkei. But yields traded in negative territory after the reversal in the Nikkei. Japanese bonds ignored the neutral comments from BoJ member Haru. Bond prices were also supported by a 5yr auction that showed strong demand. Buying in longer maturities was subdued due to reduced market speculation that the G7 will discuss the yen's recent weakness. - Tocom gold: Tocom gold was slightly higher at midday, well supported by the stronger USD/JPY and firmer oil prices. Gold trading remains rangebound, lacking strong direction