Asian Market Update

Credit markets brace for more bad news

Credit markets brace for more bad news: Most Asian financial stocks traded lower after the Swiss paper SonntagsZeitung referenced a 'confidential' study by the hedge fund Bridgewater, which suggests that the losses for banks holding risky assets could be four times greater than the $400B previously estimated. Bridgewater calculates that the losses would amount to $1.6T if they were marked to market rather than valued in the form of securitization, raising doubts whether financial institutions can raise enough cash to absorb losses of such a magnitude. Another Swiss newspaper reported that UBS and Credit Suisse may need to raise $68 billion more in capital to meet new demands from their bank supervisor. Citing a parliamentarian, the Sonntag paper said that the banks would likely have to sell equity to raise the capital.

Forex: The USD started the week on a solid footing ahead of the G8 meeting. Bernanke's speech on Tuesday is expected to be a market mover, and many analysts think the USD can take a big knock if his comments do not support market expectations for rate tightening. EUR/USD dipped below hourly support at 1.5690 early on, with Euro-Bund redemptions and EUR/JPY selling weighing on the pair. EUR/USD continues to weaken ahead of the European session, with support seen at 1.5605/10 (the 20-day MA). GBP/USD also traded lower, spooked by several pieces of negative news over the weekend. The Telegraph newspaper reports that the threat of rising unemployment in Britain will be driven home this week by news that the number of permanent jobs available has fallen for the first time in five years. In addition, the Sunday Express is reporting that U.K. lender Bradford & Bingley is set to issue more profit warnings, while Alliance and Leicester is planning a savage dividend cut to shore up its finances. The broad USD strength at the start of the week pushed USD/JPY back above 107, the highest level since June 27. USD/JPY now approaches an important resistance level at 107.30 (a resistance that lies on the previous uptrend support line from the March 17 low of 95.71). The USD/JPY's 200-day moving average is seen at 107.62. Weak economic data, coupled with a resurgent greenback, dragged down the AUD/USD. Hourly support has formed around 0.9610/15, and a break below will target Friday's low at 0.9590. USD/KRW dipped sharply on the back of verbal intervention by Korean authorities,

Australia's construction sector contracts for the fourth consecutive month: (AU AIG PERFORMANCE OF CONSTRUCTION INDEX FOR JUNE: 40.3 V 36.9 prior) 'The findings confirm the intense and on-going pressures on the major construction sectors from higher interest rates and tighter liquidity,' said AiGs director of economics and research, Tony Pensabene. 'We are continuing to see weakness on a broad industry front, with falling demand, weaker economic conditions, and increased competition for work, cited as key factors by firms for the continued fall-off in activity,' he added.

Aussie job ads decline for the second straight month in June: (AU JUNE ANZ JOB ADVERTISEMENTS M/M: -3.0% V -1.7% prior) ANZ co-head of Australian economics Sally Auld said the survey was consistent with the trend in easing employment growth since the start of the year. Howveer, she added that she does not expect a significant slowing in labor market activity. 'Indeed, the risk may be that persistent skill shortages could encourage firms to hoard labor,' she argues. 'This should ensure that while labor market conditions soften, the slowdown in employment growth and the rise in the unemployment rate will be reasonably measured.'

Abu Dhabi has reignited speculation that the United Arab Emirates may break its fixed peg to the U.S. dollar: 'Although the U.A.E. has officially made it clear that it would not de-peg its currency from the flagging U.S. dollar, international financial institutions as well as experts and analysts have maintained that the U.A.E. would do well (to float) its currency as a means (of) curbing inflation,' said the Abu Dhabi department of planning and economy over the weekend.

Equities: At 23:45 EDT Japan's Nikkei is +0.83%, the S&P/ASX200 is -1.72% and the Shanghai composite index is +3.98%. The Nikkei index recovered from session lows on short-covering, with banking stocks leading the rebound after 12 straight days of losses. Trading in Tokyo was subdued in the absence of cues from Wall Street, which was closed on Friday for a holiday. Aussie stocks extended their losses at the start of the week, with resource stocks and property issues performing poorly. Aussie financials traded sharply lower on lingering credit market concerns, pushing the benchmark index below 5,000. Equities listed in South Korea, the world's fifth-largest oil importer, traded sharply lower as investors wait to see how Korean authorities will respond to surging energy prices. Bargain hunting lifted Chinese and Philippine shares.

Commodities: The firming USD took down oil prices, despite OPEC President Chakib Khelil warning over the weekend that oil prices will continue to go higher. In the first session since the 4th of July celebrations, Nymex crude oil lost -1.05% between 18:00 EDT and 23:43 EDT, last trading at $143.77/bbl. The National Hurricane Center said that Tropical Storm Bertha is strengthening over the Atlantic and could become a hurricane during the next day or two. The storm is moving toward the west but it's still too early to say where or even if it will hit land. Spot gold lost -0.81%, last trading at $927.90/oz.

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