Asian Market Update

Daily Forex Fundamentals | Written by Trade The News | May 05 09 06:18 GMT |

Media Speculation of More US Banks Requested to Raise Additional Capital Spoils Equity Rally; RBA Remains on Hold at 3.00%, Citing Substantial Pipeline Easing and More Gradual Inflation Decline With many of Asian financial markets on holiday break, trading in the region has been more subdued and noticeably less volatile than in recent sessions, particularly in light of the broad-based gains seen in US indices on Monday. Nikkei225 remained on holiday break for second of the three consecutive sessions, and was also joined by Korea's Kospi. The absence of a bullish follow-through from the US rally in the Asian bourses that did stay open however is predominantly related to the afterhours developments from the US banking sector, and the news is hardly positive. Quoting unnamed sources familiar with the stress-test results, Wall St Journal reported that the government is expected to request that 10 out of the 19 banks undergoing stress tests would be requested to raise additional capital. This follows speculation that Bank of America and Citi, would need a $10B equity raise - a claim refuted by BAC spokesman - and earlier rumors of as many as 4-6 banks would have to post additional capital. In Australia, S&P/ASX reversed its initial rally, trading down to unchanged levels, and front-month S&Ps slid below $900 after trading just below $904. Despite the weaker than expected Q1 inflation data and accelerated rise in unemployment rate, Reserve Bank of Australia heeded consensus forecast to retain cash rate unchanged at 3.00%. Australia's monetary body cited signs of stabilization in some regional economies as well as substantial easing undertaken in the past whose impact was yet to be felt. On inflation, the RBA noted that price pressures would remain on a downward path albeit at a more gradual pace. Going forward, RBA suggested it would continue to assess if more rate reductions are required based on the unfolding economic and financial conditions. On the upside, Australia's March building approvals reported earlier came in above expectations of 2.8% at 3.5% on a m/m basis. In notable Sydney index shares, energy and gold producers Woodside Petroleum and Newcrest Mining traded to the upside on strength from both commodity markets earlier in US hours. In other materials, Bluescope Steel was halted after announcing it would raise A$825M in secondary offering at A$1.55 v last price of A$2.57. Elsewhere in Asia, Taiwan government was reportedly looking to implement a tax exemption for funds in its offshore banking units so as to extend the recent equity market outperformance. In Indonesia, markets were preparing for the likelihood of another interest rate easing of 25bps, taking Reference Rate down to 7.25%. In currencies, hints of risk aversion led to consolidation of USD losses against the European and commodity majors, as well as JPY strength tracked from the US session. EUR/USD sold off to 1.3350's after trading above 1.3430, while GBP/USD peaked just shy of 1.5050 before falling to 1.4980's. Swiss Franc drifted against USD just below 1.13, but fell against the other EUropean majors after SNB's Hildebrand forecasted negative domestic inflation in 2009 and zero inflation in 2010/11 periods. In commodity FX, AUD gained slightly after the RBA decision to keep rates on hold before the prevailing caution in today's session pulled the Aussie back to 0.74 handle against USD. CAD traded at its best level against the greenback since early November, breaching 1.1715. Japanese Yen consolidated its gains posted earlier in the US session, where it decoupled from equity rally with strength of its own. USD/JPY traded down to 98.60s, while EUR/JPY declined nearly one big figure from session's best levels to 131.80's. Crude oil prices are lower in Asia, after gaining by more than 2% during the NY session. The NY gains for oil came as the S&P 500 had its biggest point and percentage gain since April 9. Additionally, the recent expansionary PMI figures from China and India are seen as supportive for oil prices. Spot Gold is higher and trading above $900/oz, after gaining more than $13 during the NY session. Looking ahead, gold prices may gain some direction from the release of the stress test results for the US banks, which are due later this week. 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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