Asian Market Update

Daily Forex Fundamentals | Written by Trade The News | Nov 19 08 06:48 GMT |

Rescue plea by car makers put to test on the Hill, Asia markets pare early gains In the most dire display of desperation, CEO's of the US 'Big-Three' automaker companies pleaded reluctant Congress to bail out their industry, contending that staying afloat without a lifeline from the government in the immediate future will be difficult. Speaker of the House Nancy Pelosi appeared favorable to the cause, urging Congress to move on a decision as early as this week as time becomes of the essence ahead of December Washington break, however Congressional members across both parties appeared to be skeptical. Automaker executives used a variety of arguments - from the inherent interconnectedness of domestic auto industry with the rest of the economy, to the progress that has already been made in reforming the viability of their business models. Entrenched difficult economy, reined in consumer spending, and tight credit conditions have made this a difficult choice for the legislators however, who were still visibly seething from (in the words of one Senator) being told that 'fundamentals are sound, to being asked for bazooka-size bailout for banks, to discovering that the funds they appropriated would not be used as intended.' Additionally, UAW labor union chief contending that concessions have already been made, as well as an academic from University of Maryland arguing that federal aid would create another AIG while recommending bankruptcy to restructure companies costs contributed to lawmakers skepticism. And while President-elect Obama has stated his support in helping the auto industry, the current administration is still not willing to spend taxpayer money on 'company that can't prove that it has a long-term path for success.' Equity markets in Asia initially rallied, tracking the gains made by US indices in the final hour of trading, thanks in part to a solid Q4 outlook from tech bellwether Hewlett-Packard. However, with little else to get excited about from other sectors, the early gains were pared by mid-session across the board. Nikkei225 traded over 1% to the downside on the other side of the lunch break amid reported weakness from housing and financial names. Mitsubishi Estate cites a sharp slowdown in commercial tenant market while its financial relative - Mitsubishi UFJ - posted a 60% drop in profit. Likewise, Sumitomo Mitsui bank was under financial duress, disclosing the need to raise 400B yen ($4B) by selling preferred securities. In South Korea, Vice Finance Minister Kim reiterated most recent dim assessment from officials, stating that domestic economy is weakening further while expressing administration plans to focus on creating jobs and help smaller businesses. Testament to deteriorating regional fundamentals, investors in Korea's electronics powerhouse Samsung reportedly asked company management to focus on cheaper laptops and mobile phones as well as to slow pace of production of large screen TVs, while also requesting less spending on semiconductors and LCD displays next year. Meanwhile, Central Bank chief Lee pledged to supply timely short-term liquidity to money markets. S Korea's Kospi traded off by over 1% in mid-Asian hours. Australia received another round of sobering economic data with release of Westpac leading index figure below -0.1% estimates at -1.0%, sparking a selloff in equities to fresh 4-year lows in S&P/ASX, however those losses were subsequently retraced, with the index falling by just over 0.5% toward session close. RBA member Edey spoke at Economic Outlook Conference, commenting on persisting uncertainty and forecasting significant further slowing in the economy while allowing for the central bank's monetary action and the government's fiscal measures to 'cushion' the decline. Aussie oil names like Woodside Petroleum were particularly heavily sold as slumping energy demand pushed crude prices below $55 - a 22-month low. Equity indices in India meanwhile cheered additional remarks from the country's Finance Minister, who pledged government focus to stimulate domestic demand via a stimulus package while also commenting on central bank bias toward more accommodative monetary policy. Sensex thwarted selloff elsewhere in Asia with a 1.8% rally. Shanghai Composite was also notably higher on announcement of possible rise of oil prices in China stemming from OPEC production cuts. This may not sit well among increasingly dissatisfied with financial hardships populace - a development underscored by riots reported from Northwestern Gansu province in response to local governments forced resettlement scheme. Protests by workers laid off from local factories impacted by global economic decline escalated into violence against police force and commercial property in what could still evolve into another historic manifestation of mass opposition to central planning system, as its systemic weaknesses become exaggerated by a global economic downturn. In currencies, volatility among the majors remains subdued for second consecutive session. EUR/USD oscillated in a tight 1.26-2640 range for the duration of the Asian session, GBP/USD rebound was contained by former support turned resistance at 1.4980 despite the late rally in US markets, while USD/CHF took out 1.2050 en route to fresh 2008 low for Swiss franc. Japanese Yen rallied in conjunction with Asian equity market weakness, however the USD/JPY downside was thwarted by US session low just above 96.30. EUR/JPY slid from 122.50 to 121.50 with subsequent support found at US session low of 121.00. GBP/JPY has also traded with little directional momentum, finding consistent buying interest below 144.00 figure. Among commodity related pairs, AUD traded with a heavy tone for second consecutive session, paring earlier gains with a selloff toward 0.6420 while aiming for week low of 0.6370. USD/CAD traded marginally to the upside, testing session highs of 1.2330 on continued selling in crude. Among emerging Asian FX, Hong Kong dollar rally was reported to be interrupted by injection from HKMA at 7.75. USD/SGD briefly tested fresh multi-month highs just below 1.53, while USD/KRW maintained its clearly defined November uptrend with a new high above 1,460. In commodity trading, crude oil is higher by more than (%) and trading below $55.00/bbl. Overall crude has swung between gains and losses on the session and trading has been confined to a roughly $0.55 range. In terms of the speculation related to a Nov OPEC output cut, the cartel's Secretary General noted that it is too early to talk about cutting oil supplies. In China, the CEO of one of the country's largest oil companies, CNOOC, said that national oil companies in the country are expecting oil prices to fall to $40/bbl. This comments follow a WSJ report which disclosed that China's Oct fuel demand fell sharply. Despite the declining demand for oil in China, a government researcher noted that the government plans to introduce a retail fuel tax “soon” in a move to support local oil companies. In India, there are reports that the government may seek to lower retail fuel taxes as a way to provide aid to the country's airlines and stimulate travel demand. Looking ahead, today's US Department of Energy weekly inventories report is expected to show that crude stocks rose by 1M barrels during the prior week, according to 1 survey. Spot Gold is higher by more than 0.50% and the metal has traded in a $3 range for most of the session. Spot gold continues to lack direction as it deals with being a safe haven asset and demand for the USD. Earlier on the session an unconfirmed report noted that China's central bank is examining raising its gold reserves to as much as 4K tons from the current level of approximately 600 tons in a move to diversify its foreign exchange reserves. This report was in line with a prior report in the HK Standard and comes on the day that it was announced that China surpassed Japan to become the largest foreign holder of US Treasuries. According to an analyst at Investec, if China raised its gold holdings to 4,000 tons it would be like going back to the gold standard. Amid the speculation about China diversifying its fx reserves, which are mostly dollar denominated, Japan's Ministry of Finance Official Shinohara noted that the USD needs to remain as the reserve currency, echoing recent comments out of Japan's PM and Finance Minster. 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. 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