Asian Market Update

Daily Forex Fundamentals | Written by Trade The News | Aug 01 08 04:39 GMT |

Investors now expect RBA rate cut; Cracks appear in China's manufacturing sector Australian short-term bill futures had their biggest daily jump in five years and AUD/USD plunged to the lowest level since June 17, with markets pricing in the possibility of a near-term interest rate cut by the Reserve Bank of Australia (RBA). The rally started when the market picked up on an unsourced report from The Daily Telegraph columnist Terry McCrann that the RBA would use its monthly policy meeting next Tuesday to consider a cut in rates. The Daily Telegraph said a cut as soon as next week was unlikely but the central bank would use its post-meeting statement to set out the case for lower interest rates, and then ease in September. The emerging consensus is that the RBA pushed interest rates higher than the required level, as insurance in case demand didn't slow fast enough. Now that economic data has demonstrated that demand is slowing quicker than anticipated, the RBA can take back the insurance and cut interest rates. Cracks start appearing in China's manufacturing sector: (CH JULY PMI MANUFACTURING: 48.4 V 52 prior; First reading below 50, i.e. contraction, on record) The data also showed that the export orders index was 46.7 in July, down from 50.2 in June. The input price index fell to 71.3 from 75.7, while the output index plunged to 47.2 in July from 54.2 in June. Forex: The USD held its ground in Asia, with investors taking a wait-and-see stance ahead of tomorrow's U.S. jobs data. Some analysts suggest that the USD appears to have been derailed for the time being, with Friday's jobs data likely to deliver the one-two punch of negative news for the week (after Thursday's dismal U.S. data). Others argue that the market is more into selling on EUR rallies rather than buying on the dips. EUR/USD saw some volatility in Asia, with stops taken out below 1.5570. Key support for EUR/USD is seen at 1.5535 (trend line support from August low). For USD/JPY, traders heard chatter of more recently- created option barriers at 108.50, well ahead of those seen at 109.00 for some time. Australia's manufacturing sector contracts in July for the second consecutive month: (AU JULY AIG PERFORMANCE OF MANUFACTURING INDEX: 46.9 V 47 prior) AiG said that the slowing domestic and global economies, higher interest rates and the strong Australian dollar to be the biggest factors in holding back manufacturing. Australia's annual inflation rate remains well above RBA's 2%-3% target range: (AU July TD Securities Inflation MoM: 0.4% v 0.5% prior; YoY: 4.6% v 4.8% prior) 'Overall inflation remains robust, even though a price increase in utilities accounted for almost half of the total monthly increase,' said Joshua Williamson, a senior strategist at TD Securities. With the Olympics just days away, the Chinese Securities Regulatory Commission (CSRC) announced plans to restrict approvals for share sales. Analysts said the CSRC is trying to stabilize the market ahead of its hosting of the Olympics for reasons of face, but these measures can only provide a short-term boost. Japanese Prime Minister Fukuda will reshuffle his Cabinet today. Political analysts said the addition of some fresh faces in his Cabinet is widely seen as an attempt by the prime minister to jump-start his flagging public support. According to reports, LDP Secretary-General Ibuki will replace Nukaga as the finance minister, while Machimura is expected to hold on to his position as the Chief Cabinet Secretary. Financial markets largely ignored the reshuffling of Japan's leadership. Equities: At 0:05 EDT Japan's Nikkei is -2.04%, the S&P/ASX200 is -1.92%, South Korea's KOSPI is -1.65%, Hong Kong's Hang Seng index is -2.19%, and the Shanghai composite index is -1.57%, The S&P500 futures contract lost -0.17% since the U.S. close, last trading at 1,264.90. Japan's Nikkei looks set to finish the week in the red, weighed down by a lackluster Wall Street and mounting concerns about domestic corporate earnings. Japanese banks generally traded lower after Mizuho Financial and Sumitomo Mitsui Financial earnings, while NEC Corp and Sharp both declined after their earnings results. Resource companies and financials dragged down the S&P/ASX200, while electronics stocks pushed South Korea's KOSPI below 1,570. Chinese steelmakers traded sharply lower on reports that Chalco plans to lower its alumina prices, while the Hang Seng tracked Wall Street lower. Commodities: Nymex crude oil prices lost -0.44% between 18:00 EDT and 0:04 EDT, last trading at $123.53/bbl. Gold prices tracked crude lower, down -0.26% to trade at $920.30/oz. 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. Although information is taken from sources deemed reliable, no guarantees or assurances can be made to the accuracy of any information provided. 1. Information can be inaccurate and/or incomplete 2. Information can be mistakenly re-released or be delayed, 3. Information may be incorrect, misread, misinterpreted or misunderstood 4. Human error is a business risk you are willing to assume 5. Technology can crash or be interrupted without notice 6. Trading decisions are the responsibility of traders, not those providing additional information. 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