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Asia Market Update

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Nikkei Reverses After Testing 9,000 for the First Time Since January

Fri, Apr 10 2009, 07:50 GMT
by Trade The News Staff

TradeTheNews.com

Asian Market Update: Nikkei Reverses After Testing 9,000 for the First Time Since January; BOJ Cites Limited Visibility on Recovery, Offers ¥350B Loans to Financials; Bank of Korea Hints at Recession, Cuts GDP, Employment and CPI Guidance; Despite Risk Appetite, Dollar Firms to Pre-QE Levels vs EUR, CHF

- US indices galloped into the holiday weekend on a high note, spurred by lights-out Q1 guidance from Wells Fargo that topped EPS $0.23 estimates with a $0.55 forecast, sending Dow and S&P to 3-month best levels . WSJ "Heard on the Street" column looked to put a damper on WFC-inspired rally, citing uncertainty on the company's actual revenue mix and also pointing out that the estimates did not necessarily account for Wachovia takeover, with the true estimates residing somewhere around $0.45. Nonetheless, the momentum of the upswing playing out late this week, underscored particularly keenly by the Vix volatility index crashing to lowest level since late September, is unmistakable bullish.

- Positive sentiment on Wall St. translated into an initial surge in half-open Asia, as Nikkei topped 9,000 level for the first time since early January en route to 1.7% gain and Kospi traded as high as +3% on the session. However, ensuing profit-taking pushed those markets toward unchanged territory on the other side of Tokyo's midday break as investors assessed a spate of sobering BOJ commentary and actions. Central bank's March monetary policy minutes guided a cut to economic growth to take place sometime in April, reminding traders that uncertainty on the timing of recovery was high, visibility was limited and financial market tensions had resurfaced. Several BOJ members urged additional JGB purchases, and all agreed on continued need for "substantial liquidity" extended long-term.

- Subsequently in most immediate developments, Bank of Japan announced plans to provide ¥350B to financial institutions looking to shore up lending capacity that may have been depleted by depressed equity holdings. Amount and interest rate of these loans would be determined by auction, with total package said to be capped at ¥1T. Recall in the prior session, Japan government confirmed additional ¥15T stimulus - the fourth package - bringing the reported total allocation to about ¥90T.

- Elsewhere in Asia, Bank of Korea virtually confirmed the economy dipping into an official recession, forecasting -2.4% contraction in FY09 vs prior estimate of +2.2% growth. Q1 was seen up marginally on q/q basis, but down 4.2% y/y, with official GDP figure to be released on Apr 23rd. Additionally, BOK cut 2010 growth to 3.5% from 4.0%, 2009 CPI CPI estimate cut to 2.7% from 3.0%, and raised unemployment guidance for this year to 3.6% from 3.4%. In the prior session, BOK left rates unchanged, citing brief evidence of stabilization in financials, but governor Lee subsequently left the door open to additional easing.

- In notable equity names, Nikkei's Sumitomo Mitsui was down sharply by as much as 10% after confirming registration of ¥800B in new shares to be offered. Among the gainers, Isuzu was up about 15% on Morgan Stanley upgrade to overweight, while Nippon Mining rallied 7% on press speculation of a FY09 profit of ¥100B v loss ¥46.1B expected.

- In currencies, volatility was initially minimal before hints of USD strength pushed EUR and CHF to pre-Fed Quantitative Easing lows. EUR/USD briefly tested the downside of 1.31 and USD/CHF breached 1.16, while Sterling saw a more modest retreat to 1.4650. Dollar strength in European majors is particularly notable given the extremes seen in risk appetite in the recent session which has traditionally punished the greenback unconditionally. Strength in US banking names, rising expectations of additional ECB easing substantiated by more dovish rhetoric from monetary officials, and lingering credit worries following downgrade of Ireland's sovereign rating have clearly weighed on single currency. In commodity FX, AUD buyers once again retreated after a foray above 0.72, NZD/USD was contained by 0.5850, and USD/CAD approached multi-week lows just below 1.22.
USD/JPY traded as high as 100.70 before retreating along with Japan's equities.

- Commodity futures, Australia, New Zealand, and a host of other regional bourses remained closed in observance of Good Friday.

Published on  Fri, Apr 10 2009, 07:52 GMT