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27 Dec 2007

Asia Closing Highlights

Nikkei INSIDE VIEW: Interest Rate Risks May Come Back To Haunt Bond Market : Bucking the trend in the rest of the world, the yield curve on bonds has flattened in Japan over the last 6 months, and credit market investors may have to pay more attention to interest rate risks next year due to growing inflationary pressure and worsening government finances. The yield difference between 2-year and 10-year JGB widened to 0.84pt by Tuesday after narrowing to slightly less than 0.70pt in Nov. The Japanese govt's lack of fiscal discipline is another factor that could put upward pressure on long-term interest rates. Next year, Japan's bond market might have to face up to the possibility of growing inflationary pressure and worsening state finances, two interest rate risks it has paid little attention to for a long time.

Japan housing starts, dived 27.0%y/y for November, though still better than expectations of -28.0%. Fall in housing starts seen on back of new stricter building regulations. Construction orders -3.8% y/y.

Euro engaged in choppy trades amidst thin markets getting knocked back below 1.45 handle with talks of East Europeans/ Russian names selling above, after earlier bouts of buying by early Europeans, Middle East names to fresh 2-week highs. Aussie and Kiwi remain supported on dips, in thin markets, helped by firmer commodities.

Cross/JPY remained supported on back of Tuoshin demands. USD/Asians mostly held inside narrow ranges in thin year end markets. Regional stocks traded firmer with most paring back gains towards closing.

Oil prices little changed, holding steady near highs at $95.99 / bbl.

Gold edged closer to near 1 mth highs on rising oil prices and tension over Turkish-Iraq conflict. Spot gold trades $824.40 / $825.10 per oz.

NORTH ASIA:

USD/KRW climbed up to 940.2 high in late dealings, and finished at the same level. On the whole, the pairing was trapped in tight range as bid from importers was largely offset by exporters' dollar sales. Meanwhile, foreigners bought a net KRW37.3 bln worth of South Korean shares during the session.

USD/HKD plunged on profit taking in arbitrage trades with thin year end markets causing exaggerated price movements.

USD/TWD ended the session little changed after oil importers' bids shored the pairing back up after getting weighed by foreign inflows.

USD/CNY shot downwards on a post reval low midpoint fix and tapered in range for most of the session. China's 2007 GDP growth will probably hit 11.5%, unchanged from the first three quarters, Yao Jingyuan, Chief economist of the National Bureau of Statistics said.

SOUTH ASIA:

USD/SGD stuck close to the lower reaches of its narrow range of 1.4510-1.4540 with little impetus to push it either way.

USD/MYR came off in late trades to touch a low of 3.3360. The pairing was weighed by fall in USD/SGD as well as bearish USD/CNY.

USD/IDR had downside interest stifled by underlying risk and the loss of its yield appeal from overly dovish monetary policy by BI. Support was found above 9400.

USD/PHP ended the day at intraday high of 41.60. Early downside was cast aside as NDF maturities induced dollar demand pressuring the pairing upwards. While some reprieve was granted by inflows, oil companies caused a late surge as the $96 barrel brought on strong dollar demand.

Onshore USD/THB eased to below 33.80, weighed by exporters' dollar sales. The pairing was pushed to 33.87 high in early trades by suspected BOT intervention. It was also due to persistent post-election political uncertainties.

USD/INR was rapped in a narrow range consolidating above 39.40. Bias was downwards though revisits of sub-39.40 levels was prevented by oil importers and RBI fears. Lack of follow through buying in stocks also staled retreats. In other news, India's ONGC said that it is looking to amass $20 bln, preferably in loans - otherwise it has $4 bln in cash surpluses and could immediately raise $10 bln - to fund acquisition of stakes in overseas oil and gas assets

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