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Asia Market Update

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US equity rally on Fed's endorsement of Stimulus 2 carried into Asia

Tue, Oct 21 2008, 07:13 GMT
by Eben Esterhuizen

TradeTheNews.com

Equities: US equity indices accelerated their week-opening upward momentum in the last hours of the US session as investors continued to cheer the endorsement of another stimulus package by Fed Chairman Bernanke. Testifying before the House Budget Committee, Fed Chief said that "given the risk of a protracted slowdown, consideration of a fiscal package seems appropriate." Both the Dow and S&P ended the session up over 4.5% while Nasdaq gained over 3% on the comments. After-hours Q3 earnings may put a damper on further upside going into Tuesday session however, with mixed to downbeat performance coming out of the reporting US large caps. Texas Instruments missed Q3 estimates of $0.44 by a penny and met Revenue forecasts, but guided Q4 far lower than previously outlined, sending shares down by 6% after-hours. Tech notables SNDK and LOGI also disappointed, with the former coming out with negative gross profit in Q3 on y/y basis and the latter missing earnings by 4 cents per share while cutting FY sales growth outlook from 15% to 6-8%. Dow Component American Express beat estimates by 15 cents, sending its shares up 6% in after-hours, however CEO was cautious in his comments, siting "significant additions to loan loss reserves set aside to address weaker global economy and deteriorating consumer sentiment in 2009. " Additionally, Google CEO Schmidt said the company was cutting marketing spending while taking a more cautious outlook for 2009. S&P futures were seen trading slightly lower during the Asian session, giving up just over 0. 5%.

Over in Asia, key bourses are still seen tracking gains in the US markets. Nikkei is higher by over 2% in mid-session, while S&P/ASX is up by 3%. Tokyo investors have welcomed reports in the Nikkei revealing a 2 trillion yen tax cut as part of a stimulus package. Japan's Finance Minister Nakagawa has also announced government intent of a bank deposit guarantee as part of the package. In Australia, Treasury Secretary Swan negated earlier rumors of opposition to blanket bank deposit guarantees announced as part of Australia's own fiscal package, expressing unequivocal government support behind the measure. RBA released minutes from the last meeting when they cut interest rates by 100 basis points, stating that the magnitude justified risks to the economy, expectations of deceleration in inflationary pressures, as well as deteriorating conditions in retail and employment sectors. However, RBA Governor was somewhat more upbeat on the prospects going forward in his speech to a Sydney Business Circle, suggesting that risks of global capacity have receded and the world is "getting on a better path". Governor Stevens went on to single out China's growth potential having many years to run, sentiment that was echoes from China's NDRC Chairman the day after GDP disappointment who stated that domestic market strength can sustain annual growth rate of 9%.

Elsewhere, Hong Kong Hang Seng and Korea's Kospi were up marginally after a strong Monday session. South Korea's Kim reined in optimism, stating that 2009 GDP growth will be lower than the earlier 5% target - recall Moody's has recently downgraded its growth forecast for Korea to as low as 2.2%.

Currencies: Major USD-based pairs retained risk aversion decoupling trend from equities, with the dollar preserving its US session gains against EUR, GBP, and CHF. Japanese yen added to its gains in the major crosses in early Asian hours, aided by a rally against the dollar from 102.10 to 101.50. Aussie dollar sold off 50 pips following the RBA minutes despite the rally seen in Australia's government bond yields. NZD is likely to be the currency in play as markets anticipate a comparable to RBA 100 poing cut in overnight lending rates. Among the key emerging Asian FX pairs, SGD and KRW continued to pare their recent losses, tracking diminished risk aversion across financial markets.

- Commodities: Crude oil prices are higher by more than 1%. Crude oil is rising for the 3rd consecutive session and is tracking the gains in Asian equities. Additionally, crude continues to trade higher into this week's emergency OPEC meeting. On today's session, Qatar's Oil Ministers noted that he was confident that OPEC will cut output and he expects the cut to range between 1M and 3M bpd. Over the weekend, OPEC's President said that the cartel might agree to cut output by 1M-2M bpd, which is about 4.7% of OPEC's daily output. Spot Gold continues to track the grains in oil prices. Gold is indicated above $800/oz and more than 1% higher on the session. In other metals trading, both Shanghai copper and zinc futures are lower by their daily limits after China's Q3 GDP data pointed to slower growth.

Published on  Tue, Oct 21 2008, 07:14 GMT