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Asia Market Update

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Asian markets unwind equities and carry trades ahead of the weekend

Fri, Oct 24 2008, 07:04 GMT
by Eben Esterhuizen

TradeTheNews.com

For the 2nd consecutive day, investors looked for value on a dip below 8,500 level in the Dow, bidding up US large-caps higher to avoid three consecutive triple-digit losing sessions while helping DJIA to a 2% gain. Dow Jones has closed below 8,500 just once in recent months - the day before an over 900- point recovery - with consistent rallies on a dip below this figure marking it as a potentially significant support level to watch in the final hour trading sessions going forward. And while there was no single macro driver of a rally besides bargain-hunting, an over 200 point reversal in the Dow in the final hours of trading for two straight sessions is testament to increasing market willingness to hunt for a bottom. S&P500 had in turn reversed its early session losses to close 1.25% higher on the session, while the Nasdaq was off relatively marginally by 0.7%.

On the US earnings front, Microsoft was the lone heavyweight on the after- hours docket, beating analyst estimates of $0.47EPS by a penny and also printing a much better than expected quarterly revenue figure at $15B. However, as has been the case with the other notable large-caps reporting this week, MSFT's next-quarter guidance was downgraded significantly to $0. 51 from prior $0.55 expectation and fiscal 09 was forecasted lower by as much as $0.10 per share. Conference call quoted MSFT management assuming a mild to a deep recession amid continually weak economic environment. Microsoft shares traded down by nearly a full percentage point after post earnings having ended the day 3.5% higher.

Retreat in bearishness in the US session has failed to replicate in the first half of trading in Asian bourses, where worries over sapped consumer demand from the West continue to weigh heavily on financial markets. The Nikkei was down by nearly 5% at the mid-session break and gapped sharply after, dipping below 7,900 figure for a fresh multi-year low, spurred by a 4.3% decline in sales reported out of Toyota Motors - the first quarterly sales drop in the past 7 years. Meanwhile, poor earnings seen after-hours from Sony prevented its shares from opening in time before gapping down by over 8% at the start of trading. Over in Australia, S&P/ASX has retained heavy tone on further pressure seen in falling commodities impacting miners and other materials producers. In turn, Hang Seng retreated by over 4% in mid- session, while the Kospi was seen giving up 6%.

Asia's largest semiconductor company Samsung Electronics reported a Q3 net profit of KRW1.22T, which was a 44% decline versus the KRW2.19T reported a year earlier, but in line with analysts estimates. The company's Q3 chip unit profit was KRW240B, which exceeded analysts forecast of KRW150B. Samsung's sales were KRW19.3T, which exceeded analysts estimate and represented a 15% y/y rise. In terms of the company's margins its LCD, semiconductor and telecom units all declined on a sequential basis. Looking forward the company gave a cautious outlook for all three of its units and noted that it expects all memory-chip makers to face a difficult Q4. Most notably the company said that it expects prices for DRAM and NAND flash chips to decline in Q4 and 2009. Additionally, in line with its cautious outlook, Samsung said that it planned to cut its 2008 semiconductor CAPEX and the company has yet to make a decision about its 2009 CAPEX level. Following its earnings report shares of Samsung are lower by more than 5%.

In currencies, Japanese Yen continued to punish the other majors across the board, rallying to a fresh 13-year high against the dollar after taking out the post-Bear Sterns weekend in USD/JPY below 96.00 figure. EUR/JPY and GBP/JPY, having registered multi-year lows earlier this week, were also substantially lower on continued relative weakness of European currencies against the dollar, shedding over 5 big figures and 7 big figures respectively. EUR/USD ran into heavy pressure at former support levels of 1.28, selling off to 1.2750, while GBP/USD continued to approach the next round level at 1.60, brushing it briefly before paring its losses. Swiss franc, a relative outperformer to the rest of the European majors of late, had also hit a fresh 2008 low against the greenback, with USD/CHF rallying above 1.17 to levels not seen since Oct 2007. Asian currencies also traded heavily against the greenback, with the Aussie giving up over two big figure on the dollar and USD/SGD maintaining its rally above 1.50. S Korean Won had pared some of its recent losses in today's session however, rallying to just below 1,400 against USD after bouncing off the USD/KRW1,430 level put in earlier in the week.

Ahead of today's expected output cut by OPEC, crude oil has pared most of its gains due to the declines in Asian equities. Earlier Iran's oil minister said that OPEC should cut output by 2M barrels a day in order to balance the market. Spot Gold is lower by more than (%) as the stronger USD has weighed on the metal.

Published on  Fri, Oct 24 2008, 07:08 GMT