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Asia Market Update

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Global slowdown fears cause Rio Tinto and BHP to drop by the most since Oct 1987

Thu, Oct 16 2008, 09:25 GMT
by Eben Esterhuizen

TradeTheNews.com

- Equities: Late US session trading went from bad to worse as major indices continued to negate Monday’s rally. After two days of carnage, Dow Industrials has come within 150 points of Friday’s closing levels while S&P is just 2 points shy of its respective settlement price. Stark reminder of consistent deterioration in fundamentals that is increasingly likely to translate into a US economic contraction as early as Q3 has overcome this week’s initial exuberance of an equity infusion into the credit-strapped banking sector. The latest decline in US retail sales – 2nd consecutive negative figure on a monthly basis – suggests that the US consumer sector that has been the engine of the US economy may finally be tapped out of credit while the lowest reading in Empire State Manufacturing Index since the measure was first reported in 2001 paints a bleak picture for this industry-heavy region. eBay was the most notable reporting US company after the market close and while its Q3 earnings came in above expectations, a sharp cut in guidance for Q4 is testament to evidence of declining consumer activity. eBay shares extended its 13% market hours drop with another 3.5% decline in after-hours activity on the back of that report. As was the case yesterday, sellers in the US have passed the baton to their counterparts in Asia, with heavy selling seen in Nikkei and S&P/ASX early hours. The drop in the former to the tune of 9.5% is particularly painful as it registers a 20 year low. Not helping matters is the dour forecast from the President of Toyota, who noted a far more challenging business environment than one anticipated just two months ago. Two other major exporters – Honda Motor and Sony declined by 7.6% and 9.2% respectively on perception of drying up demand from the US market. Finally, Japan’s Prime Minister Aso made a public statement calling the bank bailout insufficient in quelling global market turbulence. Over in Australia, equity markets were off by nearly 7%, led by a 21 year low seen in BHP Billiton, the world’s largest mining company that is sharing the brunt of a global slowdown among other Aussie commodity producers. Continued pressure in crude prices in the face of a hurricane in the Gulf threatening refineries speaks volumes to the extent of vulnerability of the overall commodity sector. Elsewhere, Taiwan’s Taiex was off by over 3%, while South Korea’s Kospi and Hong Kong’s Hang Seng shed nearly 7% in early session trading. As risks of a default from a major power escalate, rumors of foreign banks reducing credit to Korea's banks as well as Moody’s cutting Korea’s credit ratings are augmenting market concerns. Thus far, Moody’s has denied that rumor.

- Currencies: The start of the Asian session saw some profit-taking within the context of predominantly risk averse currency flows, as Japanese Yen and US Dollar were being sold particularly heavily against the high-yielding AUD, GBP, and NZD. The counter-trend rallies saw technically-driven inflection in major pairs however, with EUR/USD finding selling pressure at intraday support turned resistance of 1.3530 and USD/JPY reversing its rally just under 100.50 level. AUD/USD, GBP/USD, and NZD/USD were also paring their early session rallies, resuming their macro- term downtrend just past midnight ET. Over in emerging FX, Korean Won, Taiwan Dollar, and Singapore Dollar remain heavily pressured by deleveraging forces, with the latter in particular accelerating its decline, coming within 15 pips of 2008 high of 1.4850. Asian economic calendar is projected to be light ahead of Core CPI and TIC data event risk at the start of the US session.

- Commodities: Crude oil and base metals continue to trade lower on declines in equity prices and concerns about a global recession. Crude oil is currently lower by more than 1.4% and trading below $73.50. Shanghai Copper and Zinc are declining by their 4% daily limits. Spot Gold continues to firm on safe-haven demand and it is maintaining its negative correlation with the EUR/USD currency pair. Gold has gained more than 0.50% on the session and trades around $844/oz.

Published on  Thu, Oct 16 2008, 09:26 GMT