Asian Market Update

Daily Forex Fundamentals | Written by Trade The News | Oct 30 08 05:35 GMT |

US markets digest FOMC while Asia cheers funding swap lines Volatility remained subdued in the 2nd half of the US equity session as traders digested the language accompanying the 50bp FOMC cut as well as the implications of its apparent dovishness relative to the prospects for US economy. With over a month to go until the next Fed decision on December 16th and the likelihood of confirmed GDP contraction in Q3, FOMC took little risk in masking its bias, stating that while the 'recent policy actions... should help over time...to promote return to moderate growth...., downside risks to growth remain.' Meanwhile, they further downgraded inflation concerns, forecasting for price pressures to fall in line. In the near term, this implies additional willingness to ease overnight lending rates to multi-decade lows, which could effectively both help the US currency confirm its recent reversal to the downside and also spook investors further about the severity of the impending recession. The unanimous support of the 50bp rate cut is also critical in shaping market sentiment regarding the FOMC focus. Dow Industrials ended the session lower by 0.8% after being up in the first half of trading while S&P500 shed over 1%. Notably, according to rumors, the last hour decline may have been attributed to comments from GE CEO Immelt pertaining to 2009 outlook - rumors that have since been refuted. In turn, S&P500 front month futures traded over 2% higher by mid-Asian session. The focus in after-hours earnings fell squarely on the health of large insurers which, in the wake of the collapse of AIG, was looked upon with great concern. MetLife met Q3 expectations of $0.88 as well as revenue forecasts - more notably, MET preserved its dividend intact. Prudential was less fortunate however, falling short of $0.94 Q3 estimates by 20c and also withdrawing in FY guidance for 08. Hartford Financial, another large insurer, topped analyst estimates by posting a narrower loss, however was last seen down nearly 2% in afterhours on downgrade in FY08 guidance. Among the other notables, Visa had a solid Q4 that saw the company beat estimates by 3 cents and also guide annual revenue up 11-15% in FY08, a potentially ominous sign for credit-strapped consumer sector increasingly turning to financing. Looking ahead to Thursday morning, the large list of notable large-caps includes Alcatel, Cigna and Eastman Kodak, as well as energy giants Marathon Oil, NRG, Royal Dutch Shell, and Exxon. The Asian markets are sharply higher on confluence of factors, the primary being a broad extension of $120B swap line to emerging markets of South Korea and Singapore. Treasury Secretary Paulson sealed his approval, stating that 'the Federal Reserve and IMF actions show international resolve to support strong performing emerging market economies adversely impacted by the current financial market turbulence.' Meanwhile, additional accomodation by US monetary authorities is seen increasingly likely to find its way back to developing economies of the Far East. South Korea's markets were particularly receptive to perception of restored liquidity following statements from Finance Minister Kang, who said that Currency swap with Fed will help stabilize markets and will be extended if needed. Additionally, South Korea's minister expressed interest in pursuing a swap line with Japan and China, sparking the Kospi index to an over 12% gain. Japan's Nikkei and Hong Kong Hang Seng trailed Korea index with 9% respective rallies, while S&P/ASX benefited from commodity recovery, picking up over 4% by mid-session. Earlier, PM Kevin Rudd expressed his continued confidence on Aussie economy's ability to avoid plunging into a recession, stating that the central bank has been ahead of the curve with latest easing which should help keep FY growth above 2%. In currencies, reversal in risk aversion noted in Asian hours summary accelerated its momentum, pushing investors out of low (and going lower) - yielding majors. Markets heavily sold the dollar and Japanese Yen to week-long lows, with EUR/USD retesting 1.30's and GBP/USD extending its gains above 1.65. A breach of 1.33 recent support turned resistance in the former aims at the next technically key level of 1.3530. The latter sees little downside pressure ahead of 1.6780. Meanwhile, the Swissy is notably stronger, tracking the gains in the Euro to 1.12 level against USD. Japanese Yen has gained over 9 big figures since bottoming at 91.00 late last week, but is yet to make another attempt at support turned resistance range of 99.20-70. EUR/JPY and GBP/JPY are consolidating a breach of 130.00 and 160.00 respectively, with both pairs up well over 20 big figures since last Friday's inflection. Commodity-driven AUD and CAD are particularly strong, gaining over 8 and 10 big figures respectively since the recovering in major commodity markets earlier this week. Among the emerging Asian currencies, SGD and KRW have retained their upward trajectory, while Chinese Yuan was also higher by over a cent in spite of the modest central bank easing in mid-European session. Crude oil is higher by more than 2.8% and trading just below $70.00/bbl, after gaining 10% during the US session. Overall oil prices are gaining for the second consecutive day as the commodity continues to be supported by higher equities prices and the weaker dollar. Also, speculation that OPEC may lower output further has been supportive. Additionally earlier today, the US Dept of Energy reported that weekly crude and gasoline inventories were lower than expected (DOE CRUDE: +500K V +1.5ME; GASOLINE: -1.5M V +1.5ME). Spot gold is tracking the gains in oil prices and benefiting from the declines in the USD against the European majors. Overall gold has gained more than 1.5% on the session and trades near $770/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. 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