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Asia Market Update

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Most Asian indices recover some of the prior session's losses

Tue, Oct 28 2008, 08:40 GMT
by Eben Esterhuizen

TradeTheNews.com

US equity markets survived yet another dreaded October Monday - the last of 2008 - albeit were hardly unscathed, with another wave of selling pushing the Dow 2.4% lower and S&P over 3% from nearly unchanged levels in the last half- hour of trading. It appeared that better than expected earnings and a subsequent 10% session rally from Dow component Verizon, as well as a better than expected set of new home sales data, would allow equity indices to pare last week's losses, however investor sentiment retained its bearish mood in what is increasingly feared as deep impending recession. Markets will receive an early indication of US economy's performance in Q3 on Thursday when Advanced GDP data is released, with consensus estimates pointing to 0.5% decline. Until then, investors' focus appears to be with the Federal Reserve's ability to contain the crisis with additional accomodation in monetary policy. FOMC will begin a 2-day meeting on Tuesday, unveiling a rate decision on Wednesday that is widely expected to see a 50bp rate cut to 1.00%.

Among the notable large caps reporting earnings after-hours were crude processor/shipper Sunoco, large regional chain retailer Winn Dixie, and financial processor Fidelity National Info Service. All three beat estimates by fairly wide margins and avoided a downgrade in outlook for future flows that has become a widespread theme of this earnings season, while contributing to moderate traction in bearishness seen in the Asian hours. In mid-session, S&P front month futures are pointing to a recovery in US markets with an over 1% gain.

Major Asian indices traded mixed to positive in early Asia afternoon hours, with the Nikkei bouncing from earlier weakness to gains of nearly 3% following the break, South Korea's Kospi recovering into positive territory by 0.5%, and Hang Seng maintaining an over 1% bounce since the open. Australia's S&P/ASX was still struggling to recover due to persisting pressure in major commodity markets and lingering fears over the extent of a slowdown in China - Australia's largest export target. Additionally, rumors of suspended redemptions in Aussie financial giant Axa's New Zealand unit that expressed concern over the plausibility of blanket government deposit guarantee plan was also weighing on investor sentiment.

Tuesday's session was also light on rhetoric and action from the increasingly more proactive Asian economies' policy makers with the exception of Japan's Finance Minister Nakagawa, who announced earlier approved measures banning naked short selling in domestic shares to take effect immediately. Previously, the short-selling oversight was projected to take effect on Nov. 4th, however the urgency expressed by Japan's PM Aso to implement immediate measures in response to political pressure on his administration to deal with troubled economy has become much more apparent.

In currencies, the dollar rally seen against the European majors appears to be contained by near-term technicals. EUR/USD has once again found buying interest at 1.2330, while the GBP/USD downside was stalled just below 1.53. USD/CHF also remained range-bound after peaking around 1.1750 level. Australian Central Bank was reported to have intervened in FX markets for the third straight session, as it continues to defend against the AUD/USD breach of 0.60 handle - levels unseen since mid-2003. Meanwhile, Japan continued to reiterate its stance of strength in the Yen not being indicative of economic fundamentals and pointing to greater focus over currency appreciation among G7 members in spite of contrary rhetoric coming out of the French Fin Min earlier in the session. In spite of this discontent however, Japan's economic minister Yosano said that a BOJ 25bp rate cut to 0.25% would largely be seen as symbolic and fail to achieve significant FX impact. JPY has consolidated its gains vs the dollar in 92.50-94 range while also finding resistance at 113.50 level against EUR and 141 against GBP. Among the major emerging Asian currencies, SGD and HKD were largely unchanged while Korean Won gained sharply against the dollar.

Crude oil prices are lower by more than 1% and trading below $63.00/bbl, after falling by more than 1.8% during the US session. Overall oil is trading near 17-month lows as the stronger dollar and lower equities prices continue to weigh. Spot Gold is lower by more than 1.2% and trading below $734/oz. Gold is tracking the declines in oil prices. In others metals trading , Shanghai copper is lower by its daily limit for the second consecutive session, tracking the decline in Chinese equities.

Published on  Tue, Oct 28 2008, 08:41 GMT