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22/07/2008 | | | |
00:52 BST | | | |
| High | Low | Close |
USD/JPY | 107.16 | 106.37 | 106.43 |
EUR/USD | 1.5931 | 1.5832 | 1.5922 |
EUR/JPY | 169.91 | 169.15 | 169.46 |
GBP/USD | 2.0038 | 1.9919 | 2.0033 |
AUD/USD | 0.9773 | 0.9739 | 0.9772 |
NZD/USD | 0.7635 | 0.7587 | 0.7617 |
USD/SGD | 1.3528 | 1.3505 | 1.3528 |
USD/THB | 33.36 | 33.32 | 33.36 |
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22 July 2008
Asia Open / Overnight Highlights
- Leading Indicators, -0.1% as expected.
- Crude oil, $131.60...+$2.72.
- S Korean Vice FinMin, Kim said that the govt will be seeking ways to stabilise prices as inflation is still a concern. Kim also asked S.Korea ministries to monitor as well as take pre-emptive steps on prices.
- The Taiwan government plans to sell 20% of state-owned Taiwan Financial Holdings Co, possibly to foreign investors, to help raise the firm's management and service standards.
- Taiwan's President Ma Ying-jeou said that improved ties between the island and China were "good news" for the entire region, as the odds of military conflict had been greatly reduced.
- BI deputy governor said that the minimum reserve requirements for commercial banks may be tightened as a means of tackling inflation and to manage liquidity; already the central bank had said that it will exercise a wide range of options to achieve price stability, of which a stronger IDR is one.
- A new tax bill that is expected to be passed by the parliament by Q3 should see tax revenues for Indonesia (less oil and gas components) rising by 21% to IDR581 trln, said a senior finance ministry official; the new bill hopes to tackle rampant evasion. Also corporate tax will be cut from current 30% to 28%(2009) then 25% (2010) to attract more investments in to the country; companies with a minimum 40% of staikes listed will enjoy a further 5% tax cut.
- Recap: Indonesia will swap govt bonds maturing 2009-2013 to longer term paper maturing in June 15 2022 with a coupon of 12.9%; T-bills are excluded from the exchange; these bonds will be offered at 99.5% of par.
- Recap: BSP chief, Amando Tetangco said that "present conditions provide latitude for monetary policy, with buoyancy of aggregate demand suggesting for measured policy response"; he added that appropriate "rate hikes could reduce long-term cost output growth from prolonged inflation". Protracted inflation, he warned was "corrosive" to growth.
Currencies: A quiet day on FX, the only landmark of note a new all time high on EUR/JPY at 169.92, though this greeted with little fanfare. With EUR/USD still trading a tight range after a run through 1.5900 to 1.5908 failed to draw in momentum buyers (at least partly because Chinese sellers were lying in wait), both USD/JPY and EUR/JPY proved free to trail Sept S&Ps. The latter started soft before a decent rally that didn't start to fade until late in the European session. Better than expected results from Bank of America did lend the USD some support, taking EUR/USD down to 1.5830, and USD/JPY above 107.0. However EUR/USD moved back into the upper end of its range as equities faded, keeping EUR/JPY firm.
GBP was off to a soft start after some dovish comments from the BoE's Blanchflower, though these are far from atypical, while the Far East were also keen sellers on news of the dismal take up (less than 10%) of the HBoS issue. GBP slowly recovered through the session, with EUR/GBP again close to .7950 towards the close.
AUD remains in demand, comfortably ahead of 1.28 on AUD/NZD and encouraging talk of 105 for AUD/JPY. Gold is also still relatively bid, though while oil does look to have found a reasonably solid floor just below 130 as traders listen for weather developments on the Gulf of Mexico, the NOK is still struggling to make any decent ground, including against the SEK.
Bonds: Treasuries came under renewed pressure very early in the US trading session as firming equities (driven by better-than-expected Bank of America earnings) continue to put upward pressure on bond yields as credit concerns dissipate. Leading Indicators came in as expected and therefore failed to add much more fanfare to an otherwise subdued trading session. Treasuries failed to gain any significant momentum in any direction for the remainder of the session despite slowly bleeding stock indices until a late day rally into the close occurred as equities losses gained momentum. By the close, 2s @ 2.64% (off 1bps), 10s @ 4.07% (better by 1bps), 2s30s @ 200 (flatter by 1bps).
- Agency spreads: 2s, Freddie/Fannie, -2.25 bps/ -5.75 bps, 5s, Freddie/Fannie, -3.50 bp/-4.75 bps, and 10s, Freddie/Fannie, -3.50bps/ -5.00 bps.
- Interest rate swap spreads: 2s @ 97.75...-2.50 bps, 5s @ 97.25...-2.00 bps, 10s @ 74.625...-1.375 bps.
Equities: An increase in the price of oil was able to help energy the sector advance but it also cast a dark shadow on the overall indices by causing modest declines in consumer discretionary and staples sectors. Adding to the weakness were the drug makers led by Merck and Schering-Plough after one of their combined drugs was linked to cancer. The session was choppy and the losses were modest in a subdued trading session. Dow was down 0.25% (-29.23pts); S&P lost 0.05% (-0.68pts) and Nasdaq extended softness falling 0.14% (-3.25pts).
Asia Outlook: Sentiments in emerging Asia look to be mixed; quite inevitably. We have support in oil prices, the overall softness on Wall Street (despite better than expected earning shown by BoA), and JPY crosses which are topping off, if not pulling back on one hand while on the other we have a softer greenback and easing credit concerns (as financials have surprised on the upside). The direction for USD/Asians is not all that clear and markets will not be inclined to undertake hefty bets either way.
After the regional equity market rally yesterday, we expect that Asian bourses will be a bit more cautious about extending bullish moves today, especially with cues from oil and major US blue chips pointing south; instead some profit-taking instinct seems more likely. Weight in some regional pairings from hawkish focus by central banks should be offset by caution and in some cases, political issues. Overall, we expect that the mood of consolidation for USD/Regionals will prevail, with central banks standing ready to intervene; if anything, risks are tilted to the upside.
NORTH ASIA
USD/KRW: Softer stock sentiments in the US and the support found in crude futures as prices bounced back above $130/bbls are seen as factors that will be supporting the USD/KRW in trades though the usual jawboning and intervention should contain rallies intraday. Trades are expected to be in the 1009.0-1029.5 range today. Prices in the NDFs opened at 1020.5-1021.0; traded at 1019.50-1020.5 before closing at 1020.5-1021.0. Moderate volume was cited.
USD/CNY: A softer dollar overnight and risks in oil prices tilting upwards could see the USD/CNY being set at softer levels today, though murmurs of slowing growth and the