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Asia Market Update

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Equity meltdown accelerates late in the day on Dubai World concerns

Fri, Nov 27 2009, 07:29 GMT
by Trade The News Staff

TradeTheNews.com

Asian Market Update: Equity meltdown accelerates late in the day on Dubai World concerns; Japanese officials engage in more verbal intervention to talk down Yen after USD/JPY plunge below 85.00; Gold, oil fall

ECONOMIC DATA

(NZ) New Zealand Oct Trade Balance (NZ$): -487M v -480Me

(KS) South Korea Oct Current Account: $4.9B v $4.0B prior; Goods Balance: $5.7B v $5.3B prior

(JP) JAPAN OCT JOBLESS RATE: 5.1% V 5.4%E (6-month low); JOB-TO-APPLICANT: 0.44 V 0.44E

(JP) JAPAN OCT NATIONAL CPI: -2.5% V -2.4%E (multi-year low); NATIONAL CPI CORE: -2.2% V -2.3%E; NOV TOKYO CORE: -1.9% V -2.2%E (first increase since Feb)

(JP) JAPAN SEPT HOUSEHOLD SPENDING: 1.6% V 0.7%E

(JP) JAPAN SEPT RETAIL TRADE M/M: -0.9% V -0.9%E; Y/Y: -0.9% V -1.6%E (11-month high); LARGE RETAILERS SALES: -7.2% V -5.8%E

(NZ) New Zealand Oct M3 Money Supply: 0.8% v 2.7% prior

SPEAKERS/PRESS

- Asian equity markets are in freefall on Dubai World restructuring request and default concerns, denting the perception of a regional recovery, exposing global financials to investment losses, and raising panic mode across the asset classes.
Equity markets ended the session near their worst levels, with banking stocks leading the sell-off across the board: Nikkei225 and Korea's Kospi fell to 4-month lows, dropping 3.2% and 4.7% respectively. Taiwan and Hang Seng were both down over 3%, S&P/ASX traded down 2.9%, and Shanghai Composite declined 2.3% in the final hour. Ahead of the Friday session, front-month S&Ps also caught up to the regional drop late in the day, falling 3.2% to 1,074.

- One by one, Australian and Japanese banks issued statements regarding their minimal exposure to the $59B liability noted by Dubai's Department of Finance, as uncertainty over the target of restructuring further obfuscated the crisis. In Sydney, ANZ said it had no exposure, Macquarie Group and NAB said their exposure was "negibible", and CBA confirmed some exposure but refused to disclose the amount. In Japan, Sumitomo said it was owed at least $225M and Mizuho said it was owed $100M. Mitsubishi UFJ also noted an undisclosed amount. Regionally, Abu Dhabi Commercial Bank was said to be on the hook for $1.9B, leaving a vast amount of distressed debt concealed. In a research note, Morgan Stanley's take pointed out a larger cloud over credit markets, noting that: "increased scrutiny by foreign lenders could curtail domestic growth in the region and aggravate the credit constraints on large family groups. All of this is a cause for concern, and none of it seems to be worth any potential benefits that may be derived from the rescheduling of Dubai World's debt."

- A spike in risk aversion reverberated particularly loudly in currency markets in general and in Japanese Yen in particular, prompting a Tokyo cabinet meeting and a a slew of government officials talking down the currency. Finance Minister Fujii was most vocal and influential in bringing USD/JPY back from the brink below 85.00, noting the need and ability to take action on disorderly movements FX in the markets and pledging to contact US and European officials if currencies reach extreme levels. Deputy PM Kan also stated that rapid rise in JPY would derail the economy, and that the govt would take measures as needed to avoid a double-dip recession threat.

- In other regional speakers discussing other topics, Chinese press cited NDRC Vice Min Xie reiterating the administration's target to cut carbon dioxide emissions per unit of GDP in 2020 by 40-45% vs 2005 levels. In Korea, monetary authorities noted that current account would be in the surplus in November.

EQUITIES

- In individual equities, Japanese automakers reported October output levels. Most notable, Toyota saw its first y/y rise in 15 months, producing 710K units or +1.4% y/y v -2.5% prior. In other "big three" names, Honda made 301K units, -18% y/y v -17% prior, and Nissan made 306K units, +10% y/y v -9% prior. Separately, Toyota announced that 2010 sales growth in China are likely to slow, while Honda was said to look into expanding its manufacturing capacity in Guangzhou. In the commodities space, Japanese press reported that BHP requested that major Japanese steelmakers move to spot-based pricing of coking coal rather than annually pre-negotiated rates.

CURRENCIES/FIXED INCOME/COMMODITIES

- Japanese Yen pairs were on a rollercoaster ride for much of the session, with the Yen gains scaled back by the verbal intervention before returning late in the day. USD/JPY tested the downside of 85.00, returned to unchanged at 86.50, and fell back below 85.50. EUR/JPY and GBP/JPY saw respective session lows near 127 and 139 handles, while AUD/JPY traded down to 76.50's - an area of support defended since mid-August. AUD was also weak against other majors as RBA probability for next week's decision saw a far less certain rate hike. In European majors, EUR/USD was last seen approaching 1.49 for the second time in the session, and GBP/USD fell to 3-week lows below 1.6350.

- In commodities, the crowded gold and oil bull runs came to a screeching halt as USD spiked higher. Spot gold fell about $25 to $1,164, just as front-month crude broke out of its $76-82 trading range, hitting 6-week lows below $74.50.

Published on  Fri, Nov 27 2009, 07:31 GMT