Asian Market Update

Daily Forex Fundamentals | Written by Trade The News | Jul 25 08 04:22 GMT |

U.S. housing trouble hits Australia's biggest bank National Australia Bank, Australia's biggest bank, made provisions equivalent to 90% of the value of its A$1.2B of collateralized debt obligations (total writedown at A$830M). The announcement sparked the steepest decline in the company's stock in seven years, and credit- default swaps showed that the cost to protect the bank's subordinated debt from default rose by the most in more than four months. 'We believe it is prudent to take a full provision now, based on a worst case scenario,' said CEO John Stewart. 'This provision reflects the unprecedented conditions in global credit markets and, in particular, the rapid deterioration in the United States housing market,' he added. The bank said that its dividend is unaffected, and assured investors that its capital position remains strong. Stewart told reporters that the worst-case scenario might not be too far away for the U.S. housing market. Forex: Selling on the JPY crosses dominated price action in Asia, with AUD/JPY, EUR/JPY and NZD/JPY dragging down AUD/USD, EUR/USD and NZD/USD. USD/JPY took out stops below 107.40 at the end of the New York session, and has just taken out some stops below 107.10. For AUD/USD, traders see hourly resistance around 0.9625, while key support is found at 0.9530 (the 61.8 fibo of the 0.9327/0.9851 move). Some commentators suggest the AUD will remain heavy after RBA Watcher Mitchell, a writer at The Australian Financial Review, released a dovish article on interest rates. The RBNZ decision to cut interest rates is also expected to weigh on AUD. 'Investors perceive New Zealand being further along the same economic curve and it is a matter of time something similar happens' in Australia, said ANZ senior currency strategist Tony Morriss. For NZD/USD, solid support is seen ahead of 0.7380, and a break below this level will likely require a general improvement in USD sentiment. Japanese inflation accelerates, but fails to change the market's view on interest rates: (JP JUNE NATIONAL CPI YOY: 2.0% V 1.9% expected, 1.3% prior; CORE: 1.9% V 1.9% expected, 1.5% prior; July Tokyo Core 1.6% v 1.6% expected, 1.3% prior) It wasthe biggest jump in core inflation since January 1998, but so far there's no sign of second-round effects. 'Unless wages rise clearly, it is hard to expect an interest rate hike,' said Hiroshi Shiraishi at Lehman. 'We think that is not going to happen before the latter half of next year.' Japan's June Corporate Service Price Index shows the 19th straight month of increases: (JP JUNE CORPORATE SERVICE PRICE YOY: 1.2% V 0.7% expected, 0.6% prior) Transportation costs rose 6.2%, while real estate service fees rose 1.4%. Samsung's Q2 net profit grew 51% on a y/y basis, but fell short of market expectations. The company painted a gloomy picture, with a sluggish chip market and declining margins in flat screens and handsets expected to pressure results over the coming months. The LCD division saw margins of 21% in Q2, compared to 23% in Q1, while the telecom division saw margins of 13%, well below the 15% seen during Q1. The average selling price for handsets stood at $143 during Q1, slightly better than the $141 seen during Q1. Samsung raised its 2008 capex target to KRW12.5T, exceeding its prior estimate of KRW11.0T. Executives added that they are not sure if the company will repurchase stock this year. Equities: At 0:06 EDT Japan's Nikkei is -1.97%, the S&P/ASX200 is -3.80%, South Korea's KOSPI is -1.73%, Hong Kong's Hang Seng index is -1.84% and the Shanghai composite index is -1.07%. The S&P500 futures contract lost -0.22% since the U.S. close, last trading at 1,251.00. What rebound? Asian stocks tracked Wall Street's doom and gloom, with financials trading sharply lower. Japanese exporters traded lower, with traders once again focusing on the deteriorating outlook for the U.S. housing market. Aussie financials nosedived after Australia's biggest bank, National Australia Bank, announced a massive writedown. Commodity-related shares also came under selling pressure, with more investors worrying about the outlook for global growth. South Korean tech companies traded sharply lower after Samsung's results disappointed, while airlines continue to drag down sentiment in Shanghai. Commodities: The Nymex crude oil contract had an uneventful Asian session, last trading at $125.58/bbl. Spot gold gained +1.04% on safe-haven demand, tracking CHF gains. 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. 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