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Asia Market Update

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Carry trades unwind ahead of U.S. jobs data

Fri, Sep 5 2008, 04:25 GMT
by Eben Esterhuizen

TradeTheNews.com

- Forex: The JPY gained ground at the start of the session, with investors dumping carry trades and rumors doing the rounds that the Bank of Japan checked rates. Traders say Japanese importers are seen buying JPY crosses at current levels, but the short-term risk remains to the downside. ECB president Trichet may have maintained his unambiguously hawkish language on inflation, but currency markets continue to focus on the gloomy outlook for European growth. EUR/USD traded as low as 1.4214, while EUR/JPY tested 150.53. Analysts say that the USD rally is gaining more credibility, with USD demand expected on any decent pullback. AUD/USD remains under pressure, with chartists pointing out that the next significant support for the pair is seen at 0.8100 (61.8% retracement of the 0.7015 to 0.9850 move).

- FDIC chairman Sheila Bair said that the credit downturn is far from over. She said she expects more failures over the coming weeks, but said the FDIC's $45 billion insurance fund was adequate to cover any losses. "But given the stress analyses (including high-loss scenarios) that we've been doing for over a year, we're confident that our industry funded resources available to the insurance fund are more than enough to cover projected losses," she said.

- Aussie construction falls for the sixth straight month in August: (AU AUG AIG PERFORMANCE OF CONSTRUCTION INDEX: 43.1 V 41.6 prior) "The decline reflected the impact of weaker house building activity, and a further fall in the apartment sector (albeit at a slower rate) and a reduction in work on engineering construction projects," the survey said. Optimists pointed to an improvement in commercial construction activity, which expanded for the first time in six months. House building activity declined for the seventh consecutive month, while the employment sub-index remained in negative territory for the fifth straight month.

- Japan's Q2 business investment falls more than expected: (JP Q2 CAPITAL SPENDING: -6.5% V 0.9% expected, -4.9% prior, the fifth straight decline; EX SOFTWARE: -7.6% V -1.0% expected, -5.2% prior) A one-off change in accounting at leasing firms was behind the change, a finance ministry official said, with such firms no longer including the purchase of equipment for leasing out. Analysts dismissed the semantics of the data definitions, arguing that the release adds weight to the view that high raw material costs are hurting Japan's economy.

- According to the New York Times, the People's Bank of China has begun discussions with the finance ministry on ways to shore up its capital. Given the poor performance of foreign bonds, the Chinese government could decide to shift some of its foreign exchange reserves into global stock markets, the paper added.

- Equities: At 0:15 EDT Japan's Nikkei is -2.88%, the S&P/ASX200 is -2.33%, South Korea's KOSPI is -0.95%, Hong Kong's Hang Seng index is -2.84% and the Shanghai composite index is -2.40%. The S&P500 futures contract lost -0.32% since the U.S. close, last trading at 1,232.60. The Nikkei dropped sharply early Friday morning, but managed to recover some ground ahead of the weekend. A rapidly rising JPY hurt exporters and financials, while resource companies continue to drag on the index. In Australia, the S&P/ASX200 is currently trading below 4,900, weighed down by mining stocks. Concerns over the KRW continue to sour sentiment in Seoul, with Samsung Electronics trading higher on press reports that it may bid for U.S. chip company Sandisk.       

- Commodities: Nymex crude oil recovered from early selling, and is currently trading at $107.87/bbl. Gold drifted around $800/oz.

Published on  Fri, Sep 5 2008, 04:26 GMT