Asian Market Update

Daily Forex Fundamentals | Written by Trade The News | Jan 16 09 07:20 GMT |

Asian Equities Cheer TARP II and Bank of America Bailout in US; Nikkei Shrugs Sour BOJ, Outperforming Regional Peers on Falling Yen; Korea Banks Under Review at Moody's Equity markets in Asia traded up across the board on additional relief targeted at renewed turmoil in the US financial sector. In the evening coinciding with the farewell address of Pres. Bush, Senate Democrats won in releasing the remaining TARP funds with a 52-42 vote across party lines. Subsequently, late in the Asian session, US Treasury agreed to provide yet another $20B in fresh capital to Bank of America, presumably in part for assistance with its assimilation of the Merrill Lynch assets. Under the announced arrangement, the Treasury will acquire preferred stock paying 8% dividend, absorb up to $10B in potential losses, and will then provide majority of protection against larger losses beyond that sum. Nikkei225, which had been trading near session highs on broad local currency weakness ahead of the BAC announcement rallied sharply for an overall 3% session gain to reclaim most of the ground lost the day before. Likewise front month S&P contract spiked sharply to session highs on the BAC news for a 1% overall rally, portending more strength in US hours as rumors of a weekend nationalization of a large US institution grow. As impressive as the gains on the Nikkei appear, the bulk of company specific news continued to disappoint, raising questions over sustainability of the Tokyo rally. Electronics giants Panasonic cut its annual income forecast on demand-driven concerns and Hitachi Ltd. was reported to post a substantial loss. Hitachi Construction was also rumored to implement additional output cuts, according to a research note from UBS. In Tokyo financials, Mitsubishi UFJ was expected to write down the value of its securities portfolio by as much as $3.2B in Q4 and was said to be in the dark about an estimate of valuation loss on its earnings, while Mizuho Financials announced top management restructuring. Fuji Heavy has also reportedly cut its fiscal year forecast from a ¥10B profit to a ¥19B loss stemming from the slumping sales amid sharp gains in Japan's currency. Additionally, the company scrapped its plans to construct a car plant, announced additional production cuts, and placed its dividend policy under review. In turn, Bank of Japan Governor Shirakawa offered a gloomy outlook for the economy, anticipating further deterioration in economic conditions domestically and worldwide, expressing concern over persisting tightness in bank lending conditions, and forecasting more currency-related weakness in the export sector. Economics Minister Yosano echoed that sentiment, suggesting that no recovery was in sight to machinery orders after prior session's report of a two-decade low in machinery demand. Elsewhere in Australia, shares of miners gained briskly after prior session declines. BHP, Fortescue, and Rio Tinto rose 3.5% in spite of a 40% profit forecast cut for the latter at JP Morgan. Gold producers Newcrest and Lihir were also boosted with an over 5% bounce in gold prices back above $820 level with 2.8% and 4.3% respective rallies. Woodside Petroleum underperformed on both external and internal concerns, with crude oil rally mainly contained and the company reporting suspension of a natural gas project because of deterioration in market conditions. Aussie Real Estate sector's Centro Property Group was sharply higher after securing a 3-year extension on debt totaling A$3.9B. The broader S&P/ASX index was up as high as 1.4% but ended the session with a more subdued 0.6% gain. In Seoul, Kospi index ranged between unchanged and 1% gains before rising sharply following the US Bank of America announcement to finish the day up 2.2%. Moody's warned of a potential downgrade for South Korea's financial names, citing concerns over banks' currency related obligation. Some of the companies named included Woori, Shinhan, and Hana. Among other shares grabbing headlines, Samsung Electronics announced reorganization into parts and product business divisions while also combining its chip and LCD units presumably to rein in costs and in crease efficiency, and Industrial Samsung Heavy secured a KRW907.6B contract from European client to build a floating natural gas production and storage plant estimated to process 2.5m tons. Additionally, the head of South Korean government research agency KDI expected 2009 GDP growth of around 1% vs government estimates announced in early December targeting 2% growth. In currencies, the dollar and Japanese Yen were broadly weaker against the European and Commodity oriented majors as deleveraging flows dominating trading for much of the week were scaled back following the developments impacting the US financials. EUR/USD rallied as high as 1.3270 from 1.3030 intraday low, GBP/USD spiked to near 1.49 from 1.4485 lows, while USD/CHF sold off 130 pips from its peak to near 1.1150. EUR/JPY peaked at 120 after US-session low under 116.30, GBP/JPY traded up over 5 big figures from the lows to 134.50, and USD/JPY peaked at 1-week high of 90.60. AUD/USD traded as high as 0.6750 from session lows under 0.6540, and USD/CAD matched intra-day low of 1.2410, down from 1.2670 session high. At the time of writing crude oil is little changed, after declining by 5% during the NY session. The NY drop in crude came as OPEC predicted that oil demand would decline by 4.2% this year after noting in Nov that it expected 2009 global oil demand to grow by 0.6%. In other oil related news, the American Petroleum Institute disclosed that in 2008 US fuel demand had its largest decline since 1980. Overall oil prices are on track to have the largest weekly drop in 1 month. Spot Gold is higher on the session and is tracking the gains by the EUR, GBP and CHF against the USD. During the NY session, gold declined by at little more than $1.00, as the USD gained against the EUR following the ECB's rate decision. In terms of gold demand, the SPDR Gold Trust exchanged-traded fund, largest global gold ETF, disclosed that it increased its bullion holdings to a record 790.1 metric tons from 775.33 metric tons in late 2008. 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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