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Asia Market Update

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Asian Stocks Rebound Fizzles Out

Wed, Jan 23 2008, 04:27 GMT
by Trade The News Staff

TradeTheNews.com

- Forex: Carry trades continued at the start of the Asian session, as stock markets rebounded in a knee-jerk reaction to the Fed's emergency rate cut. But the rebound in Asian stocks lacked conviction, and carry trades reversed in the afternoon. "The very crux of the reason we didn't have a snapback (stocks) rally is that the market was calling for this already," said Peter McCorry at Keefe Bruyette & Woods, referring to the market's reaction to the Fed's 75bps interest rate cut. The NZD/JPY erased early gains despite talk of Uridashi issues later this week. The AUD failed to hold on to data-related gains after the stronger than expected Q4 inflation data, with AUD/JPY selling dragging down AUD/USD. AUD/USD is currently trading below the 60% retracement of its recent drop from 0.9021 to 0.8504. EUR/USD was also dragged lower by EUR/JPY selling, with technical sellers putting a cap on EUR/JPY at 157.25. EUR/USD is currently trading below the 50% retracement of its recent drop from 1.4925 to 1.4364, with the next support seen at 1.4575. Some traders said that they are nervous about going short EUR/USD, GBP and AUD, citing heavy sovereign buying on dips. As we mentioned yesterday, traders said that 105.50 is the level where many macro accounts will give up on their long USD/JPY positions.

- Australia's inflation accelerates in Q4: (AU Q4 CPI QOQ: 0.9% V 1.0% expected, 0.7% prior; YOY: 3.0% V 3.0% expected, 1.9% prior; RBA TRIMMED MEAN (CORE) QOQ: 1.0% V 0.9% expected, 0.9% prior; YOY: 3.4% V 3.3% expected, 2.9% prior) The market instantly priced in a 50/50 chance of a RBA interest rate hike at the February 5 meeting. According to a wire poll, 8/11 economists now expect a RBA rate hike at the next meeting. With core inflation accelerating above the RBA'S target range of 2.0%-3.0%, RBA governor Glenn Stevens last week indicated domestic inflation rather than market turmoil was his main focus. “The RBA is stuck between an inflationary rock and a very difficult international hard place,” said Matthew Johnson, a senior economist at Icap. With official Aussie rates at 6.75%, some suggest the central bank has some room to watch how the financial market volatility plays out.

- The Hong Kong Monetary Authority (HKMA) tracked the Fed by cutting interest rates by 75bps. The HKMA follows the Fed in reducing rates because the Hong Kong dollar is pegged to the USD. 

- Equities: The Bank of New York index of Asian ADRs declined -3.5% by the end of Wall Street's session on Tuesday. At 23:06 ET Japan's Nikkei is +0.72% after failing to hold on to gains above the 13,000 level, the S&P/ASX200 index is +3.99% after failing to hold on to gains above the 5,400 level, South Korea's KOSPI is +0.81% and the Shanghai Composite Index is -0.59%. The S&P futures contract trended lower for most of the Asian session, losing -1.25% between 16:30 ET and 23:07 ET. Most Asian equities bourses moved higher following the Feds emergency rate cut, but profit-taking and skeptical investors limited the magnitude of the rebound. "For a meaningful rise, it is necessary to convince over-pessimistic investors, who see the string of stimulus actions as only a reflection of the dire condition in the U.S. economy," said Lee Kyung-Soo at Daewoo Securities. Japanese exporters, shipping companies and financials all traded higher, while leading gainers in Australia include Rio Tinto, BHP, gold miners, banks and shares that are exposed to the U.S. economy (such as James Hardie). Shares of Aussie finance companies Allco Finance (-22%) and Challenger Financial (-4%) continue to trade lower despite the Fed's emergency cut. China's stock market continues to look heavy, as shares of the Bank of China traded lower by more than -7.0% on subprime concerns.

- Commodities: Spot gold lost -0.46% between 18:00 ET and 23:14 ET, trading at $886.30/oz. Crude oil is traded in tight ranges for most of the Asian morning, but prices dived -0.46% during the afternoon session. Shanghai copper is sharply higher on a marginal rise in risk appetite.

Published on  Wed, Jan 23 2008, 04:29 GMT