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Asia Market Update

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Markets digest news of China's quake, USD short−covering gathers steam

Tue, May 13 2008, 04:08 GMT
by Eben Esterhuizen

TradeTheNews.com

- One of the worst earthquakes in decades struck central China on Monday, killing nearly 10,000 people. 66 listed companies have been suspended pending earthquake-related announcements, as investors remain in the dark about the extent of the damage. The consensus is emerging the earthquake is unlikely to have a significant impact on the country's economy or its macro-economic policies, but the event is likely to spark inflation expectations. The earthquake has had a minimal effect on the Chinese yuan, because the earthquake happened in a region almost negligible to China's external trade.

- Oil fell below $124/bbl in Asia, with data showing a y/y decline in China's April oil imports, the first decline in 18 months. Many analysts believe the present surge in prices has been driven by Chinese stockpiling ahead of the Beijing Olympics, but the import data undermines the validity of this view. Lower oil prices inspired some bargain hunters to buy into stocks, but most investors remain on the sidelines, waiting to see if further profit-taking emerges after this week's crude inventory data. Nymex crude oil lost -0.75% between 18:00 EDT and 0:02 EDT, last trading at $123.31/bbl.

- Forex: Many traders started the week betting that renewed credit market concerns would be a drag on the USD, but the unexpected rebound on Wall Street forced some short-term speculators to reverse their trades. The USD's short-covering momentum continued in Asia, pushing EUR/USD down to its hourly support at 1.5520, with stops seen below 1.5515 and 1.5510. U.S. investment banks will be closing their quarterly books this month, and many analysts argue that the USD is vulnerable to writedown rumors over coming sessions. Chartists say 1.5565 is shaping up as a solid resistance level for EUR/USD (38.2% retracement of the decline from 1.6020 to 1.5285), and many commentators feel the EUR is perhaps undervalued after the run-up we had in oil. Concerns over the health of U.S. credit markets continue to put a cap on USD/JPY, with some chartists saying that USD/JPY's move lower will gain momentum if the near-term resistance at 104.35/50 is confirmed. The South China Morning Post reports that Hong Kong is to remain the top QDII destination, and some traders argue that the HKD could benefit from speculative flow on the back of the announcement.

- Retail sales data shows a strengthening Chinese consumer: (CH APRIL RETAIL SALES YOY: 22.0% V 21.0% expected, 21.5% prior; YTD YOY: 21% V 20.6% prior) Analysts said the data shows a broadening of consumer spending in China. "Consumption growth has accelerated, even in real terms, in recent months, as residential income accounts for a growing share of the increase in national wealth," said Lu Zhengwei at Industrial Bank in Shanghai.

- Equities: At 0:00 EDT Japan's Nikkei is +1.08%, the S&P/ASX200 is -0.12%, South Korea's KOSPI is little changed, and the Shanghai Composite index is -2.58%. The S&P500 futures contract gained +0.05% since the New York close, last trading at 1,405.40. Chinese stocks traded sharply lower in a knee-jerk reaction to yesterday's earthquake, but benchmark indices quickly recovered. Oil producers, insurers and financials led much of the downside in Shanghai, but construction provided solid support. The Nikkei index tracked Wall Street's solid session, with automakers and selected technology stocks performing well. M&A continues to dominate the headlines in Sydney, with financials trading higher on the back of the St Georges / WestPac merger. Shares of St. George's Bank jumped more than 20% after being resumed, as many investors shift money from resource stocks into financials. South Korean high-tech stocks strengthened further on a positive earnings outlook, with favorable curreny rates also providing upside.

Published on  Tue, May 13 2008, 04:10 GMT