Asian Market Update

Daily Forex Fundamentals | Written by Trade The News | Feb 17 09 06:49 GMT |

Broad-based Risk Aversion Boosts USD to Multi-week Highs as Equities Plummet and Investors Flee to Gold ; Japan's Finance Minister Yields to Pressure to Step Down; Dovish RBA Meeting Minutes Sink Aussie Equities, AUD With US financial markets closed in observance of President's Day, thin holiday trading saw magnified volatility in Asian hours as risk aversion dominated sentiment, spreading from currency markets to equities. Concerns over the financial sector in Europe - where Moody's warned over Eastern banks' troubles potentially impacting their Western "parents" with possible credit rating cuts - translated into steep losses in the Euro. Single currency bearish bias was also magnified by earlier comments from German Finance Min Steinbrueck warning that Ireland is in a difficult spot and may need a coordinated EZ rescue, sending EUR/USD down to levels not seen since December 8th. A breach of 1.27 February support in EUR/USD unleashed a technical wave of USD buying, sending the pair below 1.2650. GBP and CHF followed suit to multi-session lows against USD, with the former falling below 1.42 and USD/CHF rising to 1.1740. Embattled Tokyo markets punished by double-digit Q4 GDP contraction in the prior session saw a fresh wave of selling in both Japan's equities and currency. The prospect for a near term recovery were also grim, as Japanese press noted that the government may be forced to lower its view of employment and personal consumption in its February report for fifth consecutive month. Meanwhile, facing growing pressure from his own party regarding his conduct at the G7, Japan's Finance Minister Nakagawa yieled to opposition and announced his resignation as soon as the lower house of Parliament passed a budget bill. Nikkei225 traded down to lows not seen since late October, dropping as much as 1.7% before closing down by 1.3%. Chipmaker Elpida was one of the more heavily sold names as general sector weakness added to profit-taking after the company's Taiwan M&A related gains last week. Likewise, Japan's currency, normally boosted by risk aversion, was also notably lower against the surging USD, falling deeper to 5-week lows after the Nakagawa announcement. JPY gains against the falling EUR and GBP were also scaled back on the news, with EUR/JPY and GBP/JPY rising toward unchanged on the day levels. In Sydney, traders heeded the dovish tone set by the early February meeting minutes at the RBA. Cutting cash rate by 100bps, central bankers saw the need for a substantial rate cut due to strong global headwinds and down-trending inflation. Furthermore, RBA forecasted a flat Q4 GDP and weak retail sector demand, before noting improvement in credit markets and a quicker pace by consumers in paying off debt. Australia's more forward looking economic data was also fairly upbeat. Q4 housing affordability index registered a highest level in five years, and a rise in personal loans confirmed greater increase in lending trend cited by RBA. S&P/ASX ended the session near lows down 1.5% however, while AUD/USD traded down to early February lows near 0.64. Korea's markets saw the greatest regional weakness, with the Kospi leading the regional indices decline to a 4% session loss. Trading in the financial sector remained heavy after Woori CEO appealed for state aid in the prior session. Chip sector further added to index woes, with Hynix falling by 5% after a downgrade at JP Morgan. South Korea's Vice Fin Minister attempted to contain the damage, suggesting the economy may recover in 2009. Nonetheless, volatility here had also translated into FX, as USD/KRW rose to 2-month highs prompting rumors of intervention by BOK. Spot Gold is trading sharply higher in Asia, after moving to a fresh 7-month high earlier during the session. Some dealers noted that stops were triggered after $950/oz was breached on financial sector concern from Europe. In other gold related news, Russia's first Deputy Chairman Alexei Ulyukayev noted that the country central bank's gold holdings increased and that Russia was seeking to continue this tendency this year. Crude oil is lower and at the time of writing trading below $37/bbl, tracking the declines in equities. In terms of oil supplies related news, the head of the IEA Tanaka warned OPEC on further supply cuts and said there would be a supply crunch, if the global economy begins to recover in 2010. Russia's Deputy PM Sechin said that his country may stockpile up to 16M tons of crude oil and products in a move to provide assistance to OPEC. Goldman Sachs noted that the fast OPEC production cuts have helped rebalance the market faster than expected. In other oil supplies related news, Exxon Mobil disclosed that in 2008 its proven reserves rose by 1.5B barrels or 7% y/y to a total of 22.8B. In terms of oil demand, South Korea, the world's fifth largest oil importer, is planning to push back its plan to increase its state oil reserves by 2-3 yrs from the originally planned 2010. Additionally, China's Jan diesel imports declined by 88% y/y, while gasoline imports dropped by 70% y/y. 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. 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