Asian Market Update

Daily Forex Fundamentals | Written by Trade The News | Jul 21 08 04:54 GMT |

Iran stalemate continues, Blanchflower beats up the GBP Forex: Currency trading was quiet as Japanese traders celebrated a public holiday, with thin conditions leading to exaggerated price action. The USD seems to be stabilizing somewhat after JPMorgan and Citi's earnings, but this week brings reports from WaMu and Wachovia, two institutions that have been burned by their significant subprime exposure. 'Given that few of the major currencies seem attractive to investors at the present time, a sad-sack performance is appropriate,' said David Watt at RBC Dominion Securities. The GBP took a beating in Asia after the Bank of England's Blanchflower said that he would like to see interest rates 'well below' their current level. Blanchflower, widely regarded as the most dovish member of the MPC, said the U.K. economy is probably already in a recession and is likely to contract for three to four quarters. 'It's not too late to stop it, but we have to act right now. Monetary policy has been far too tight for too long. We can't just sit and do nothing as we have done for too long,' he added. The GBP is also being dragged down by the worsening outlook for the housing market, with the U.K. Royal Institute of Chartered Surveyors projecting that house prices may slump a further 20% over the next two years. AUD/JPY rose to near an 8-1/2 month high of 104.19 in the early Asian session on Monday, while EUR/JPY moved to a weekly high of 169.51. Australian producer price inflation softer than expected during Q2: (AU Q2 PPI QOQ: 1.0% V 1.6% expected, 1.9% prior; YOY: 4.7% V 5.3% expected, 4.8% prior) The currency market showed little reaction to the report, with most investors waiting for the CPI report due later this week. Analysts said that it was a mixed report, with big price increases at the early stages of production but less at the final stage. 'It seems like costs are not being passed down the chain of production as much as we thought,' said Brian Redican at Macquarie. Several commentators have pointed out that there is a weak correlation between Australia's PPI and CPI data, but the data adds weight to the view that the market might be overestimating the upcoming CPI release. U.S. Treasury Secretary Paulson sought to reassure the public on Sunday, saying that the U.S. banking system is sound, while also bracing people for more troubled times ahead. 'I think it's going to be months that we're working our way through this period - clearly months,' he said. Paulson said the number of troubled banks will increase. 'Of course the list is going to grow longer given the stresses we have in the marketplace, given the housing correction. But again, it's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation,' he said. Equities: At 23:58 EDT the S&P/ASX200 index is +3.09%, South Korea's KOSPI is +3.41%, Hong Kong's Hang Seng index is +3.25% and the Shanghai composite index is +1.58%. The S&P500 futures contract gained +0.09% since Friday's close, last trading at 1,261.50. The S&P/ASX200 rallied strongly in the Asian morning, with miners leading the charge, but the benchmark index stalled at the psychologically important 5,000 level. Australian banks are also trading higher, boosted by Citigroup's better than expected earnings report and press speculation that the government may place limits on short-selling. Airlines and financials lifted the Kospi, while financials added to most of the upside in Shanghai. HSBC, listed in Hong Kong, traded sharply higher on press reports that the bank is talking to China's sovereign wealth fund about an investment in the U.K. banking sector. Japanese markets were closed for a public holiday. Commodities: Nymex crude oil prices gained +0.68% between 18:00 EDT and 23:54 EDT, last trading at $129.75/bbl. Iranian negotiators had shown little flexibility in a meeting with world powers over the weekend, provoking threats of a fresh round of sanctions. Iran is now facing a two-week deadline to give a final answer to world powers seeking a breakthrough in the nuclear crisis, and the stalemate is expected to provide support to oil prices over the coming week. Spot gold gained +0.17%, last trading at $959.60/oz, as the metal tracks the oil price gains and a softening USD. Trade The News Staff Trade The News, Inc. Legal disclaimer and risk disclosure All information provided by Trade The News (a product of Trade The News, Inc. "referred to as TTN hereafter") is for informational purposes only. Information provided is not meant as investment advice nor is it a recommendation to Buy or Sell securities. 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