TradetheNews
11-04-2008, 05:13 AM
Reserve Bank of Australia has shocked the financial markets in Asia for the 2nd month in a row with a wider than expected interest rate cut, showing its willingness to douse the impact of global financial turmoil felt domestically with liquidity even as its fundamentals are relatively more healthy than those seen in Europe, the US, and the rest of Asia. RBA cut overnight cash rate by 75bp to 5.25% in follow-up to last month's 100 bp surprise, citing continued turbulence across global financial markets as well as fresh signs of a deeper slowdown in China - Australia' largest trading partner / commodity importer. Additionally, RBA Governor Stevens reflected on weaker than previously expected domestic spending and activity as evidenced by poor retail and housing data seen earlier this week to support the broad monetary measure. And although the most recent round of inflation remains uncomfortably high, Stevens saw easing capacity pressures and global disinflationary forces assisting in bringing inflation closer to RBA's 2-3% target.
Asian equity bourses unanimously cheered additional accomodation from Australia, with Nikkei 225 spiking by 50pts above 8,950, Kospi gaining over 10 points (about 1%), and Hang Seng picking up nearly 500 points to reverse earlier session lows and test 14,500 level. Australia's S&P/ASX was down for much of the session before the rate cut, falling as low as 2%, but saw extreme buying interest in a knee-jerk response, with the bulls stepping in to erase the session losses and take ASX into positive territory above 4,220. The aftershocks of the rate cut were also felt in the US where front-month S&P contract, which had traded around 965 prior to the decision, changed its downslopting session trajectory as it gained 3 points to trade above 968. Earlier volatility in US equities during Monday's session was notably subdued with Dow ending the day lower by 0.06%, S&P shedding 0.2%, and Nasdaq rising by 0.3%.
Among the most notable equity names in Asian hours was Sanyo, which gained on renewed speculation that Panasonic will make an offer for the company. Rumors of the acquisition surfaced over the weekend only to be rejected by Panasonic spokesperson, but expectations appear to be on the rise once again. Japan's auto sector echoed poor guidance from US's Ford, with Honda CFO cutting US sales forecast by 4.1% in expectation of the first drop in over 15 years. Earnings season in the US saw mixed reports from notable large-caps Anadarko (APC), ADP, and MasterCard(MA). APC continued a hot earnings season streak for energy sector, beating estimates in EPS and revenue while reaffirming strong liquidity position. MA also followed the sector-based footsteps of Visa, coming in above expectations and helping its shares to an over 8% gain afterhours. ADP was predictably sensitive to the slowdown in the job sector, cutting sales guidance for FY09. Shares of ADP were down over 2% in after-hours session.
In currencies, AUD/USD was clearly the major pair in play late in the Asian session as it fell by over 100 pips from pre-rate cut 0. 6720 level all way to 0.66. In our preview of the rate cut, we had cited a whipsaw observed in AUD/USD the last time the central bank surprised the market with a wider than expected cut last month when it recovered swiftly from early weakness to end the session above the pre-rate cut level. However, despite the risk-appetite seen in equities, an upward bounce in the Aussie has yet to surface. Weakness in the Aussie also translated into weakness among the European high-yielding majors. GBP/USD led the way in the decline, shedding a full figure from 1.57 to 1.56 as Sterling was also sold off against the Euro. EUR/USD traded mixed in post RBA hours, oscillating around 1.26 figure. Japanese yen trading was also notably less volatile, with USD/JPY downside contained by 98.30 support / 99.30 resistance. GBP/JPY was sharply lower on pound weakness below 154, while EUR/JPY decline was cut short at 123.50.
- South Korea's Yonhap reported that China and South Korea may soon expand their current currency swap agreement to $10B-$30B from $4B. Under the two countries' current swap agreement each is allowed to buy the others currency on the open market. The expansion of the current swap pact could also include US dollars. The purpose of the swap would be to improve liquidity in China and South Korea's foreign exchange markets. During October, the Fed and the Bank of Korea entered into a $30B currency swap aimed at improving USD liquidity in South Korea. In addition to its currency swap agreement with China, South Korea is also seeking to expand its currency swap agreement with Japan as the Japanese currency has risen sharply against the KRW in recent months. Japan and South Korea currently have a $13B swap agreement. Back in 2001, Japan entered into a swap agreement with South Korea, which was then equal to about $2B and it was aimed at preventing a recurrence of a currency crisis and speculation. Also in 1998, following the Asian financial crisis Japan entered into a swap agreement with South Korea equal to $5B. The press report regarding South Korea entering into swap agreements come as the country's foreign exchange reserves had its largest drop in Oct since 1997.
Crude oil is lower by more than 0. 75% after falling by more than 5.5% during the US session. Spot Gold is lower by more than 0.30%, but outperforming oil prices. Both gold and oil prices continue to be weighed down by the gains in the USD against the European majors and evidence of slower economic growth. Crude oil trades around $63.30/bbl, while gold is around $724/oz, In terms of OPEC commentary, the Qatar oil minister said that it is too early to say whether OPEC needs to make added output cuts. Back of the 10/27, the Qatari official noted that his country needed oil to be above $55/bbl for its FY08 budget.
Asian equity bourses unanimously cheered additional accomodation from Australia, with Nikkei 225 spiking by 50pts above 8,950, Kospi gaining over 10 points (about 1%), and Hang Seng picking up nearly 500 points to reverse earlier session lows and test 14,500 level. Australia's S&P/ASX was down for much of the session before the rate cut, falling as low as 2%, but saw extreme buying interest in a knee-jerk response, with the bulls stepping in to erase the session losses and take ASX into positive territory above 4,220. The aftershocks of the rate cut were also felt in the US where front-month S&P contract, which had traded around 965 prior to the decision, changed its downslopting session trajectory as it gained 3 points to trade above 968. Earlier volatility in US equities during Monday's session was notably subdued with Dow ending the day lower by 0.06%, S&P shedding 0.2%, and Nasdaq rising by 0.3%.
Among the most notable equity names in Asian hours was Sanyo, which gained on renewed speculation that Panasonic will make an offer for the company. Rumors of the acquisition surfaced over the weekend only to be rejected by Panasonic spokesperson, but expectations appear to be on the rise once again. Japan's auto sector echoed poor guidance from US's Ford, with Honda CFO cutting US sales forecast by 4.1% in expectation of the first drop in over 15 years. Earnings season in the US saw mixed reports from notable large-caps Anadarko (APC), ADP, and MasterCard(MA). APC continued a hot earnings season streak for energy sector, beating estimates in EPS and revenue while reaffirming strong liquidity position. MA also followed the sector-based footsteps of Visa, coming in above expectations and helping its shares to an over 8% gain afterhours. ADP was predictably sensitive to the slowdown in the job sector, cutting sales guidance for FY09. Shares of ADP were down over 2% in after-hours session.
In currencies, AUD/USD was clearly the major pair in play late in the Asian session as it fell by over 100 pips from pre-rate cut 0. 6720 level all way to 0.66. In our preview of the rate cut, we had cited a whipsaw observed in AUD/USD the last time the central bank surprised the market with a wider than expected cut last month when it recovered swiftly from early weakness to end the session above the pre-rate cut level. However, despite the risk-appetite seen in equities, an upward bounce in the Aussie has yet to surface. Weakness in the Aussie also translated into weakness among the European high-yielding majors. GBP/USD led the way in the decline, shedding a full figure from 1.57 to 1.56 as Sterling was also sold off against the Euro. EUR/USD traded mixed in post RBA hours, oscillating around 1.26 figure. Japanese yen trading was also notably less volatile, with USD/JPY downside contained by 98.30 support / 99.30 resistance. GBP/JPY was sharply lower on pound weakness below 154, while EUR/JPY decline was cut short at 123.50.
- South Korea's Yonhap reported that China and South Korea may soon expand their current currency swap agreement to $10B-$30B from $4B. Under the two countries' current swap agreement each is allowed to buy the others currency on the open market. The expansion of the current swap pact could also include US dollars. The purpose of the swap would be to improve liquidity in China and South Korea's foreign exchange markets. During October, the Fed and the Bank of Korea entered into a $30B currency swap aimed at improving USD liquidity in South Korea. In addition to its currency swap agreement with China, South Korea is also seeking to expand its currency swap agreement with Japan as the Japanese currency has risen sharply against the KRW in recent months. Japan and South Korea currently have a $13B swap agreement. Back in 2001, Japan entered into a swap agreement with South Korea, which was then equal to about $2B and it was aimed at preventing a recurrence of a currency crisis and speculation. Also in 1998, following the Asian financial crisis Japan entered into a swap agreement with South Korea equal to $5B. The press report regarding South Korea entering into swap agreements come as the country's foreign exchange reserves had its largest drop in Oct since 1997.
Crude oil is lower by more than 0. 75% after falling by more than 5.5% during the US session. Spot Gold is lower by more than 0.30%, but outperforming oil prices. Both gold and oil prices continue to be weighed down by the gains in the USD against the European majors and evidence of slower economic growth. Crude oil trades around $63.30/bbl, while gold is around $724/oz, In terms of OPEC commentary, the Qatar oil minister said that it is too early to say whether OPEC needs to make added output cuts. Back of the 10/27, the Qatari official noted that his country needed oil to be above $55/bbl for its FY08 budget.