Asian Market Update by TradeTheNews staff

Discussion in 'Trading' started by TradeTheNews, Mar 6, 2007.

  1. TradeTheNews

    TradeTheNews ET Sponsor

    Asian Market Update: Asian stocks recover from early carry trade jitters

    - Caution in Asian equity markets as some fear another round of carry trade unwinding may kick in: Some analysts have warned that serious carry trade liquidation is yet to set in. Analysts remain concerned over the March effect, as the Japanese fiscal year ends and companies buy back yen to bring funds back home. Some suggest the still-low implied currency volatility indicates that the consensus underestimates this risk, and Japanese equities sold of sharply as the yen strengthened in early trade. In further signs of risk aversion, US notes rallied as Japanese equities pared earlier gains.

    - Asian equities recover from early jitters: The Nikkei 225 opened in positive territory, but moved into the red as the yen strengthened and traders turned cautious ahead of the Friday settlement of March futures and options. At the start of the afternoon session the Nikkei staged a rebound on bargain hunting, but further gains seem limited due to absence of fresh buying cues. The Kospi is currently up 0.5%, but the index is being weighed down by utilities, telecoms and insurance companies. The Hang Seng index is currently higher by more than 0.60% with gains being led by oil and financial shares. Chinese equities are higher by more than 1.5% and have ignored today's initial pullback in other Asian shares. Gains in Chinese shares were driven by Citic Securities. Some suggested that the Aussie equity rebound may just be a bounce from overselling, suggesting that the ASX200 could become sensitive to profit taking. This scenario has not materialized, as the ASX200 held on to gains and traded up by 0.8%. Gains on the ASX 200 are being led by Qantas Airways and mining shares.

    - Aussie Q4 GDP shows the economy still has a fair bit of momentum: Q4 GDP QOQ: 1.0% V 0.5% expected; YOY: 2.8% V 2.0% expected. AUD/USD spiked on the release, but could not break first resistance at 0.7773 as some traders suggest that a RBA rate hike in 2007 could materialize. The increase in GDP was driven by business investment and a surge of consumer spending. Most analysts expect to Aussie economy to push capacity constraints going forward if it continues at this kind of pace.

    - Nationwide UK consumer confidence in February comes in stronger than expected (85 v 82 expected), but shows BoE rate hikes impacting on UK consumers: The better than expected reading remains well below the 94 recorded immediately before the recent BoE rate hikes started and only marginally above the low point of 83. The "present situation" component fell by 2 points to 84 in February, its lowest ever level, as UK consumers respond to the recent rate hikes from the BoE. Consumer sentiment remains fairly downbeat, but underlying feelings about jobs and income have not collapsed which suggest a fairly stable economic background

    - UK wage inflation accelerates: According to a KPMG/REC report, UK February pay pressures came in at a 8mnth high, and February temporary pay pressures came in at a 27mnth high. The survey showed some tentative signs that demand for staff may be starting to ease, in which case pay pressures should also start to lessen.

    - BoJ deputy governor Iwata, the only BoJ member to vote for unchanged rates at last two meetings, says the BoJ needs to watch if investor attitude to risk changes.

    - Commodities: Gold, crude oil and copper are trading near session lows as fears of carry trades unwinding caused traders to sell commodities. Spot gold is holding above the $648 level, while crude oil is holding below $61. There is some chatter that OPEC will step up hawkish talk over the coming sessions, as members may be looking for more revenue assurance while heading into seasonal demand downturn.
  2. " some fear another round of carry trade unwinding may kick in..."

    I'm telling ya', this fear is well-placed and is a real threat to global equity markets.
  3. TradeTheNews

    TradeTheNews ET Sponsor

    We might have only seen the tip of the iceberg - One of Japan's top online brokers ( data shows that its traders have been steady cross/yen during the JPY rally over the past two weeks, despite the JPY gains
  4. USD-JPY 116.5600

    It keeps rising towards that disastrous 115 point of no return level.

    Will the U.S. government do anything to prevent it? Can they?

    Wouldn't they have to massively hike rates here to prevent it?
  5. TradeTheNews

    TradeTheNews ET Sponsor

    We've heard talk of a massive USD/JPY option barrier at 115, so it might take some time for USD/JPY to break that.

    - Historical trends in JPY strength: It seems to be a typical pattern when carry trades are unwound that it goes for six weeks (implies we should see JPY strength for another 4 weeks) - Commonwealth Bank analyst. "In May last year we had a six week decline in equity markets. It seems to be a typical pattern when carry trades are unwound that it goes for six weeks." (Richard Grace at Commonwealth Bank)