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Asia Market Update

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Market Euphoria Eases as Traders Assess G−20 Progress

Fri, Apr 3 2009, 12:13 GMT
by Trade The News Staff

TradeTheNews.com

Asian Market Update: Market Euphoria Eases as Traders Assess G-20 Progress, Take Profits Ahead of Monthly US Jobs Data; EUR Backs Away from 1.35 v USD, 135 v JPY; Gold Contained by Technically-Pivotal $910

- The final trading session of the week in Asia is notably more subdued after consecutive days of rip-roaring rallies, with buyers heading to the sidelines going into the weekend. Fleeting feel-good G20 sentiment is also potentially being replaced by some apprehension ahead of the widely dreaded March non-farm payrolls from the US, where last month's jobless weekly claims and this week's ADP precursor portend another poor result. Moreover, the start of the new earnings season kicks off next week, with Dow's first component Alcoa reporting on Tuesday and few expectations of a pronounced recovery in corporate results. Nikkei225 pared early gains, trading down to unchanged levels coming out of midday break. Kospi was up just over 0.5% and Sydney's S&P/ASX was resiliently firmer with a 1.4% gain. Front-month S&Ps traded slightly to the downside for much of the day, finding consistent selling pressure around unchanged $835.50 levels.

- Despite early G20 criticism from Strauss-Kahn, IMF was seen as a big winner of the London summit with an additional $1.1T program composed of fresh $750B in borrowing resources, $250B in SDR allocation, and $100B in MDB lending. Additionally, proceeds from agreed IMF gold sales would go toward "concessional finance for the poorest countries." Pledging to restore job creation and economic growth, G20 communique targeted its $5T fiscal stimulus to result in 4% global output growth. On the more controversial topic of an international financial regulator, policymakers were more vague, pledging to create a "Financial Stability Board" (FSB) to monitor the economy and "provide early warning of macroeconomic and financial risks and the actions needed to address them". US Treasury Secretary Geithner was hardly enthused on the the G20 regulatory progress however, stating that an entity of a global financial regulator was "not going to happen".

- Economic calendar was rather light in Asian trade, with the most notable market impact seen from a press report that the US Federal Housing Administration may be the next in line for a taxpayer bailout. Constituting the first time in its 75-yr history, FHA's plea for help contributed to accentuated profit-taking in equities and sharp reversal in yen carry pairs. Elsewhere, Australia's High Court gave the A$42B stimulus package a green light after contested constitutionality of distributing cash "bonus" A$900 payments to 8.7M taxpayers. In Asia, China's official was hopeful in economic stabilization and recovery in March, while South Korea's Finance Ministry saw an even better March industrial output than in the prior month. Note, February's industrial data from South Korea topped estimates of +1.1% with a 6.6% m/m gain.

- In share-specific developments, Fortescue Metals was in the spotlight as a target of legal action by Australian regulators, who accused the company of misleading and deceptive conduct regarding its Chinese deals. This is just the latest installment in growing Aussie public discontent over China's involvement in controlling Australia's mining interests. In the same tone, Australia's press speculated that Chinese spies targeted Australian PM Rudd's laptop and mobile phone during his visit for the August Olympics. In Japan, the press speculated on rising output demand in electronics and auto names, with Sharp reportedly increasing LCD plant utilization rate, Nissan easing cuts at 3 plants, and Mitsubishi doubling its production target for plug-in vehicles.

- In currencies, diminished risk appetite renewed interest in USD and JPY, with the Euro notably backtracking from 1.35 and 135 handles respectively just as sustained bounce beyond the century level in USD/JPY proved elusive. Sterling sold off below 1.47 and commodity-driven AUD and CAD retreated from their gains. Bucking the trend, NZD traded higher on the session, reaching levels not seen since early January just below 0.59. Other yen crosses also appeared toppish, with technical implications of reversal seen in higher intra-day highs succeeded by lower late session lows.

- Crude oil prices are currently declining in Asia, after rallying by more than 8% during the NY session. The NY session gains in oil prices came as equities markets reacted positively to the G20 statement and changes to US accounting laws. Additionally, oil prices continue to benefit from better than expected economic data. During yesterday's US session, it was reported that in March, China's official PMI rose above 50, indicating that the sector is expanding. In terms of OPEC news, Tanker Tracker noted that in the 4 weeks to April 18, the cartels' shipments declined by 960K bpd, which is the lowest level since May 2003. Additionally, the IEA's chief Tanaka noted that he saw downside risks to the groups oil demand forecast. Spot Gold is currently declining, after dropping more than $18 in NY. The declines in gold prices during the NY session, came amid higher equities prices and reports that the IMF may seek to sell some of its gold in order to fund stimulus measures. According to some estimates, the IMF has 3217 tons of gold and is the world's 3rd largest holder. In terms of the technical outlook for gold, dealers are noting an intraday support-resistance pivot point around $910/oz, resistance at $930 and support at $890.

Published on  Fri, Apr 3 2009, 12:16 GMT