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Asia Market Update

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Gold, Oil drop to 2008 Lows on Deeper Global Deleveraging

Thu, Oct 23 2008, 07:28 GMT
by Eben Esterhuizen

TradeTheNews.com

The last trading hour of the session has consistently punished value-seeking buyers of US equities as main indices saw accelerated declines for the second consecutive session. S&P led the broad-based selloff with a 6% fall, followed by Dow's 5.6% and Nasdaq 4.7% losses. Exuberance over Treasury's credit relief and additional stimulus plans has been soured by the onset of the earnings season with Q4 and 2009 guidance largely disappointing investors in spite of the mixed results seen in Q3. Widely followed Amazon was a prime example of this trend in after-hours trading today, having beaten Q3 estimates by 2 cents only to see its shares drop 14% following a cut in Q4 sales forecasts. Revised sales outlook comes three months after an upgrade of revenue forecast for the year, demonstrating the extent of deterioration in consumer optimism threatening to sink US into a deep recession. A notable component of the tech sector - Seagate - was also down sharply in after- hours trading, having missed quarterly per share numbers by 10 cents while guiding an over 10% dropoff in revenue for the ensuing quarter.

Over in Asia, major bourses remain in step with the sell- off in the US. Nikkei, Hang Seng, and S&P/ASX are off by over 4%, while the Kospi is leading the decliners to the tune of over 7%. The head of Korea's Central Bank was particularly instrumental in stroking market pessimism, acknowledging the increasing likelihood of "considerable weakness" for Q3 GDP. Australia's decliners were led by large-cap commodity producer selling on multi-month lows in energy and precious metals, with BHP and Rio shedding over 8%. Meanwhile, electronics and automotive notables Konica, Mazda, and Isuzu were down by double digits on renewed worries over the export sector stemming from Japan's worse than expected Trade Balance report.

On the currencies front, trading at the start of the Asia session was met with a rate decision coming out of New Zealand. Consensus estimates widely calling for a 100bp cut were met, however the accompanying statement of RBNZ Governor Bollard were construed as somewhat more hawkish than anticipated. In spite of acknowledging the likelihood of economic growth being lower than expected, he stated that rate cuts will not necessarily remain of comparable size going forward but will largely depend on the extent of lower inflation. Furthermore, Bollard said that falling NZD will actually help to cushion the slowing economy, and that a "huge" fall in the Kiwi would be undesirable. Kiwi Dollar gained sharply in the aftermath of the central bank statement, rallying over 150pips against the greenback and the yen, while also picking up nearly three big figures against its regional counterpart AUD. Major European based currency pairs have mainly consolidated territory picked up by the US dollar in yesterday's Asian trading hours, with EUR/USD oscillating in 100pip range around 1.28 handle. Dovish statements from ECB's Trichet and Gonzalez-Paramo were particularly damaging in preventing a deeper correction, with latter suggesting that rates could be cut further without adding to inflation that was forecasted to remain below 2% through the first half of 2009. Political pressure applied on the ECB to continue lowering rates by Spain's Finance Minister Solbes and French PM Sarkozy was also seen weighing on the single currency. GBP/USD maintaining 1.6150-1.6320 range with the pound paring some of its losses on a relative basis to the Euro. JPY charge remained unrelenting as Yen bulls continued to press the currency higher to levels unseen since March against the dollar, as well as 8 year and 6 year respective highs against the British Pound and Euro. 2008 lows seen in gold and crude markets continued to exacerbate the high-yielding commodity FX unwind, keeping AUD below 0.70 level and USDCAD above 1.25. In emerging Asian FX, USD/SGD finally took out 1.50 resistance and Korean Won fell to new multi- month low above 1,400/USD on further deleveraging forces in global financial markets.

In commodities crude oil is higher by more than 0.40%, but is well off of the session's best levels as the weaker Asian equities have weighed on commodities. Spot Gold is lower by more than 1.25% and trading around $726.50/oz. Overall, gold is currently trading at a 13-month low on the broadly firmer USD. Platinum prices are lower by more than 5% and trading near the lowest point since July 2004, while nickel is lower by more than 8% and trading at a 5 yr low. Additionally, Shanghai copper and zinc are declining by their respective daily limits for the third consecutive session.

Published on  Thu, Oct 23 2008, 07:29 GMT