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Asia Market Update

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Asian stocks rally after FOMC; Oil's downward spiral continues

Wed, Aug 6 2008, 04:12 GMT
by Eben Esterhuizen

TradeTheNews.com

- Forex: The USD was mixed in Asia, failing to add on to the buying momentum seen during Tuesday's session. Dealers reported very large, very steady USD demand from U.S. real money accounts during the U.S. session, with institutional funds withdrawing from the commodity currencies. Expectations of higher U.S. interest rates diminished slightly after the Fed meeting, but several analysts argue that the USD will hold on as long as equities remain steady. USD/JPY could see some big moves over the coming sessions, with traders expecting the pair to test the large number of stops above 108.70. But it won't be easy to break above 108.70, and USD/JPY faces some near-term resistance. Some traders talked about a rumored option barrier at 108.50, while others saw USD/JPY selling by Japanese exporters ahead of Japan's "obon" summer holiday. It still looks like one-way traffic lower for the AUD/USD, with little buying interest seen until 0.9000, and stop-loss orders are also scarce. Dealers heard rumors of more real money funds planning to sell AUD/USD this week, but other commentators feel recent AUD selling has been overdone. For EUR/USD, traders heard talk of decent sized bids from sovereign names at 154.50.

- Australian home loans drop to a four year low during June: (AU JUNE HOME LOANS: -3.7% V -2.0% expected, -6.9% prior; INVESMENT LENDING: -0.3% V -6.1% prior) Analysts said the fifth straight drop in mortgage lending adds to evidence that the Australian economy is slowing down faster than the Reserve Bank of Australia has expected, reinforcing the idea that the central bank will cut interest rates as soon as next month.

- Equities: At 0:05 EDT Japan's Nikkei is +2.41%, the S&P/ASX200 is +2.90%, South Korea's KOSPI is +2.16%, and the Shanghai composite index is +1.85%. The S&P500 futures contract gained +0.13% since the U.S. close, last trading at 1,284.60. Asian stocks continue to track Wall Street's rebound, and a chorus of analysts argues that the rally off the July 15 lows is the real deal. "If the Fed can avoid raising interest rates now, and if oil prices can keep falling, any recession may be shallow," writes the Wall Street Journal's E.S. Browning. "Since investors tend to buy stocks six months ahead of a recovery, some conclude now is the time to buy." Bargain hunters bought Japanese exporters, airlines, steel makers and technology companies, lifting the Nikkei above 13,200. Shares of Mitsubishi UFJ are sharply lower after reporting a disappointing set of Q1 results, with the bank taking a ¥141.7B loan loss provision (about $1.3B). The bank maintained its forecast for nearly flat growth this fiscal year through March 2009. In Sydney, banks, retailers and certain resource stocks recovered, but the S&P/ASX200 index remains stuck below the 5,000 mark. Tech companies boosted South Korea's KOSPI index, while banks and airlines provided most of the upside in Shanghai. Hong Kong markets were closed due to a typhoon warning.

- Commodities: Crude oil prices continued the downward spiral, with the Nymex contract losing -0.70% between 18:00 EDT and 0:14 EDT, last trading at $118.34/bbl. The next catalyst for oil markets will probably be the release of the weekly U.S. inventories data, which is expected to show that gasoline stocks fell by 1.5M barrels last week. Spot gold is marginally higher by 0.21%, last trading at 888.10/oz.

Published on  Wed, Aug 6 2008, 04:13 GMT