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Asia Market Update

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Asian equities rise and then fall on the proposed US TARP agreement

Mon, Sep 29 2008, 07:05 GMT
by Eben Esterhuizen

TradeTheNews.com

- US Tarp Update: US politicians reportedly reached a tentative agreement on a $700B bank rescue plan as House Republican leader Boehner urged House members to support the rescue plan. In terms of a formal House vote, House Financial Services Chairman Frank said that there will be a vote on the plan on Monday. Also, Republican Senator Gregg noted that a Senate vote could occur on Monday. However, Senate Majority Leader Reid said that the Senate opposition may delay the rescue vote until Oct 1 (Wed). With respect to the contents of the tentative agreement, the deal immediately provides $250B, and another $100B could be used if requested by President Bush. Then Congress would have the authority to approve the remaining $350B. Other parts of the bill include a plan which seeks to limit executive compensation and grants warrants for the government. Additionally, a source disclosed that the plan would include a provision for mandatory insurance under the TARP plan (supported by House Republicans), allow the Fed to begin paying interest on banks reserves from 2008 and allow the SEC to suspend mark to market accounting. One measure that appears to be left out of the language is the Democratic supported plan to allow bankruptcy judges to have the power to change the terms of mortgages. Additionally, there is still a lack of clarity with respect to what the government will pay to acquire the distressed assets, but according to reports, the Treasury is expected to release details within 45 days. Following the proceedings with respect to the TARP, S&P 500 Futures opened higher but have since moved

into negative territory, while the USD is firmer across the board.

- Economic Numbers: NZ's August trade deficit came in less than expected (AUG TRADE BALANCE: -750M V -926ME (prior revised to -808M from - 781M) on better than expected exports. In Japan, August retail trade figures were better than expected (AUG RETAIL TRADE YOY: 0.7% V 0.2%E; MOM: 0.7% V -0.2%E), while August larger retailers sales missed expectations (AUG LARGE RETAILERS' SALES: -2.2% V -1.7%E (-0.7% PRIOR)

- Forex: The USD is firmer against most currencies. USD/JPY is gaining by more than 0.35%, but the pair pulled back ahead of the 107.00 handle The EUR and EUR/JPY are weaker as the USD gained on the potential that the US government will come to a consensus on the proposed TARP rescue plan. Also, bailout talk with respect to Fortis and bankruptcy concerns regarding Germany's Hypo Real Estate have weighed on the EUR. The GBP is weaker against the USD, JPY and CHF on reports that the UK government plans to nationalize Bradford and Bingley. With respect to the high yielding currencies, NZD/USD and AUD/USD are both little changed, while NZD/JPY and AUD/JPY are both gaining. In other currencies the USD has gained more than 2.25% against the Korean Won as the greenback is being broadly bought against the Asian currencies.

- Asian Equities: Asian equities reversed their opening gains. The Nikkei 225 is lower by more than 0.30%, after opening higher on hopes that the US government would quickly pass the TARP rescue plan. In other indices, Australia's S&P ASX 200 is lower by more than 1%, the Kospi is declining by more than 0.75% and Hong Kong's Hang Seng is weaker by more than 2%.

- Commodities: Crude oil prices are lower by more than 1%, on gains in the USD. Spot Gold is declining by more than 0.60%, tracking the declines in the EUR against the USD.

- US Banking Sector News: The New York Times reported that Citigroup and Wells Fargo are in a bidding war over a possible emergency takeover of Wachovia. The report added that the Fed and Treasury, although involved in the talks, were reluctant to guarantee Wachovia's assets as part of any deal. Also the NYT noted that Wells Fargo or Citigroup were unlikely to place bids equal to more than a “few dollars” for Wachovia versus the company's Friday closing price of $10.00/share. In other news, the FT reported that Goldman Sachs is seeking to buy as much as $50B in assets from troubled US banks in a move to expand its deposit base and help with its transition to a commercial bank.

Published on  Mon, Sep 29 2008, 07:06 GMT