Asia Market Update

Investors bet that the worst of the U.S. credit crisis is behind us

- Forex: The USD stayed in tight ranges against European currencies during the Asian morning. Traders didn’t sell the USD after the weak headline ISM reading, with the stronger employment component hinting at some stability in the jobs market ahead of Friday’s crucial Nonfarm Payrolls data. Traders said that Japanese exporters are stepping back from selling the USD to hedge their overseas earnings as the second half of the business fiscal year has just started. The market has started to think that the worst of the U.S. credit crisis is behind us, boosting support for commodity-related currencies during the U.S. session. Asian traders booked some profits on the AUD and the CAD. Traders were nervous about pushing the NZD higher, with RBNZ governor Bollard saying that monetary policy alone cannot easily curb the NZD. The Kiwi managed to hold on to gains above 0.76, a level where the NZ Reserve Bank first intervened a few weeks ago. Between 17:00 ET and 23:05 ET: GBP/USD -0.07%, AUD/CHF -0.60%, NZD/USD -0.42%, USD/CAD +0.11%, NZD/AUD +0.17%, USD/JPY -0.29%, EUR/JPY -0.33%, AUD/USD hovered around 0.89 for most of the session.

- Aussie manufacturing slows down in September: (AU SEPT AIG PERFORMANCE OF MANUFACTURING: 50.7 V 52.4 prior) AiG said that new orders remained soft, adding that exports remained stable. “Companies cited the higher Australian dollar exchange rate, skills shortages, weather and Chinese demand and competition as factors influencing economic conditions,” AIG chief executive Heather Ridout said.

- Japan’s monetary base rises for the second straight month: (JP SEPT MONETARY BASE YOY: 0.7% V 0.1% expected, 0.7% prior) Analysts pointed out that the sustained rise in Japan’s monetary base has undermined the impact of the continued draining of extra liquidity from the short-term money market.

- South Korea’s current account surplus narrows during August: (KS Aug Current Account: $610M v $1635.5M prior; Goods Balance: $2.94B v $3.04B prior) Analysts were surprised by the reading, as a surplus in August is uncommon because of outbound tourism during the vacation season. In related news, the KRW gained for the seventh straight session as USD/KRW moved to a 10yr low.

- Equities: Asian financials and resource-related stocks led a broad-based rally in Asia, with Japan’s Nikkei +1.02% at 22:43 ET (trading above 17,000). Sydney’s ASX scaled to new record highs once again, trading up by +1.32% at the end of the morning session. The Kospi is higher by more than 1.0% on gains in shares of exporters and easing nuclear tensions with North Korea. The Hang Seng is higher by more than 2.0%, trading above 27,900 as the index continues to make new record highs. In related news, Goldman Sachs upgraded the H-shares of Chinese banks to overweight.

- Commodities: Spot gold saw some mild profit-taking, losing -0.49% between 18:00 ET and 23:01 ET (staying above $750/oz). Traders talked about gold’s technical momentum, pointing out that that there’s a little follow-through on the gold charts. Crude oil prices continued to move lower (-0.05% at $80.20/bbl) after the market failed to make new highs on Friday, and it seems there’s been heavy selling by large speculators since