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Asia Market Update

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Asian automakers' November sales sink to multi−year lows, USD stages late− session rally

Wed, Dec 3 2008, 10:02 GMT
by Trade The News Staff

TradeTheNews.com

- US equity markets pared about half of yesterday's extreme losses on comparable volume, however with more bad news likely coming from US jobs data, Asian bourses are showing increasing reluctance to buy into the sustainability of a corrective rebound. Equities in Australia and Japan initially saw sharp gains at the open, but deep selling in front-month S&P500 contract briskly reversed Asia's gains as well, with majority of indices trading relatively unchanged by late session hours. Nikkei225 extended earlier slide on the other side of mid-day break toward a 1% advance on the session, S&P/ASX and South Korea's Kospi ended mainly unchanged after an initial 2% jump, while Hong Kong's Hang Seng outperformed regional markets with a more sound cocktail of incoming fundamentals lifting China telecom names.

- Deep declines in sales among Asia's automakers amid the perfect storm of tight-credit low-demand, inflated-supply environment revealed just as limited an appetite for foreign-made cars as that for those made by the sinking US auto industry. November Toyota Motors sales fell 34% (largest since 1987), Honda Motors sales dropped by 31.6% (largest since 1982), while South Korea's Hyundai sales declined a whopping 40%. Shares of all three were sharply down in their local markets. Motorcycle manufacturer Kawasaki was also down by as much as 5% after being downgraded by a Goldman analyst. The retail clothing sector in Japan proved to relatively immune to declining consumer demand for the time being, with Fast Retailing brand benefitting from unseasonably cold temperatures in Japan that required additional purchasing of winter clothes while helping the chain to a record monthly sales result and an upgrade at Nomura. Seven and I chain also traded to the upside after an outperform rating upgrade at Macquarie.

- In Australia, Qantas airline was among the most heavily traded shares after company spokesman confirmed earlier media rumors of merger talks with British Airways. Treasurer Swan stated that he preferred to keep airline majority Aussie owned and Deputy PM indicated that any potential merger process would be a long one, however QAN.AU remained firm, picking up as much as 6% on the session. Aussie commodity heavyweights were mainly subdued on continued rhetoric of dropoff in demand for enery and metals. Rio Tinto traded particularly heavy, shedding over 6% after a sharp cut in profit estimates by ABN AMRO. Aussie Q3 GDP on a quarterly basis came in slight below estimates of 0.2% at 0.1%, with weakness attributed in part to explosion at Varanus Island.

- South Korea's markets were also severely impacted by incoming fundamentals, with broad index decline coming immediately following a paltry 1.6% increase in retail sales figures for the month of October. Over the prior month, South Korea's consumer demand spurred a 4.6% increase. Moreover, South Korea's monetary officials disclosed that the government has stopped intervening in fx markets in light of insufficient capacity of reserves to make a notable impact. Earlier, it was reported that South Korea's reserves fell to the lowest level since early 2005. Hong Kong equities fared slightly better amid fresh government reports revealing rising likelihood of issueing licenses to carriers for high speed 3G wireless expansion. China Mobile and China Unicom - China's two biggest carriers - traded sharply higher in the wake of the announcement. Elsewhere, rumors of a bid for Alcoa by China's Chinalco released from a WSJ source sparked interest in metal refiner.

- In currencies, US dollar saw some late modest gains vs European currencies, with EUR/USD and GBP/USD selling down to session lows of 1.2680 and 1.4860. USD/CHF rallied to a two-day high above 1.21 but has since pared those gains. Japanese Yen rebound was contained just below 93.00 against USD and around 117.80 vs EUR. GBP/JPY found consistent buying interest in 138.20-138.50 range, while EUR/GBP consolidated sharp rally to 0.8550 staged in the prior session. Commodity oriented pairs AUD and CAD traded in thin corrective ranges after falling in early US hours.

- Crude oil prices are gaining in Asia, tracking the advance on the Nikkei. Also, some are attributing the rise in oil prices to short-covering. During the US session, crude declined by more than 4.5% to a more than 3 yr low on continuing concerns that slowing global growth will impact demand. In terms of Chinese demand, the Chinese press reported that the country's two largest refiners' (CNPC and Sinopec) gasoline inventories rose to 33.1M in Oct from 30.9M barrels in Sept, while diesel inventories rose to 51.6M from 46.8M. As oil nears the $45/bbl level, Jan $45 NYMEX crude oil puts rose by $0.62 on today's session to $2.45/bbl, while Feb $45 puts rose by $1 to $3.90/bbl.
Looking ahead, the upcoming Dept of Energy US weekly inventories report is expected to show that crude oil supplies rose by 1M barrels during the prior week, which would be the 10th consecutive weekly rise. Despite the gain in oil prices, Spot Gold is declining on the session. In US trade, gold rose by $6. 50, after falling by more than $35 during the prior session.

Published on  Wed, Dec 3 2008, 10:07 GMT