Asian Markets Press ‘Panic Button’

Fed, ECB, BoE Cut Interest Rates

The stock markets across the Asian region slumped after U.S. stocks plunged for the fifth straight session overnight, with the Dow closing at its lowest level in over five years. Mounting fears of a global recession dented investor sentiment. On Tuesday, the Dow and the S&P 500 set five-year closing lows, while the Nasdaq set a four-year closing low. The Dow closed down more than 508 points or 5.1% at 9,447, the Nasdaq fell more than 108 points or 5.8% to 1,754, and the S&P 500 shed more than 60 points or 5.7% to 996.

Crude oil fell to a 10-month low as U.S. and European rescue measures failed to assuage concerns the financial crisis will escalate. The fall aggravated on the concerns that the global financial crisis will reduce demand for energy overshadowed signs that OPEC was considering a supply cut.

Crude oil for November delivery fell as much as $4.01, or 4.5%, to $86.05 a barrel in electronic trading on the New York Mercantile Exchange, the lowest since 6 December 2007. It traded at $87.29 a barrel at 10:04 a.m. in London.

In currency market, the U.S. dollar fell to the upper 99-yen level in Tokyo about half an hour before the Tokyo market ended the day's trading, but has recovered to the mid 100-yen range in late trade. On Tuesday, the dollar was quoted in the upper 102-yen levels in late Tokyo deals.

The Australian dollar continued its free-fall, hitting a five-year low on Wednesday. The Aussie finished the session at US$0.6832-0.6836, down from Tuesday's close of US$0.7268-0.7275.

The New Zealand dollar remained under pressure as global economic uncertainty weighed on equity markets and eroded risk appetite, but it held above two-year lows. The kiwi, which rallied late after the Reserve Bank of Australia's surprise 1% interest rate cut. The kiwi ended the session at US$0.6242-0.6252 compared to Tuesday's close of US$0.6383-0.6393.

The South Korean won plummeted to a 10-year low against the U.S. dollar. The won finished today's local session at 1,395.0 to a dollar, down from yesterday's close at 1,328.1 to a dollar. For investors bought the dollar due to growing concerns over volatility in financial markets.

In Philippines the Bangko Sentral ng Pilipinas (BSP), sold dollars to prevent the peso from sliding past a 17-month trough it first hit on 7 October 2008. The peso hit P47.81 per dollar, a level it first hit yesterday, taking its losses in two weeks to 3.5% as part of a broad slide in Asian currencies succumbing to a deepening global credit crisis.

Coming back in equities, Japan led the dive, with the key Nikkei 225 index tumbling 9.4% to its lowest level in five years. Hong Kong followed with an 8.2% drop. South Korea fell nearly 6% and China closed down 3%.

The Japanese stock market tumbled, recording its biggest one-day percentage drop in 21 years, as investors dumped stocks after Wall Street extended its losses for the fifth straight trading session.

The benchmark Nikkei 225 index plunged 952.58 points, or 9.4%, to close at over five-year lows of 9,203.32, extending its losses for the fifth consecutive trading session. It was the Nikkei's third largest percentage decline ever and the steepest drop since October 1987. Further, a stronger yen weighed on exporters. The broader Topix index of all the Tokyo Stock Exchange First Section issues sank 78.6 points, or 8%, to finish at 899.01.

On the economic front, the Conference Board reported that its leading economic index for Japan decreased 0.6 percent in August. The board's coincident index also fell 0.6 percent. Among other data released today, the number of bankruptcies shot up 10.2% on month and 42.9% annually in September, while Eco watchers survey showed that the current index stood at 28 in September compared to 28.3 last month and outlook index fell to 32.1 from 32 in August.

The Chinese stock market closed sharply lower for the third straight trading session, led by financial stocks, amid escalating fears over the global credit crisis. The benchmark Shanghai Composite Index closed down 65.62 points or 3.04% at 2,092.22. The index has fallen nearly 202 points or about 8.8% in the first three trading days of this month.

The Hong Kong stock market closed sharply lower, with the key index finishing at its weakest level in nearly 28 months. The Hang Seng Index lost 1,372.03, or 8.2 percent, to 15,431.73, its first close below 16,000 since June 29, 2006, and its lowest close since June 14, 2006. The drop was the most since Jan. 22. The benchmark index has lost more than half its value since its Oct. 30 record close of 31,638.22. The Hang Seng China Enterprises Index, which tracks so- called H shares of Chinese companies, declined 11 percent to 7,452.74, its worst close since Oct. 27, 2006.

The Hong Kong Monetary Authority cut the city's lending rate by 1.0% effective Thursday, adding its weight to the growing number of central banks unveiling monetary easing in response to the global credit turmoil.

The Hong Kong Monetary Authority, which manages the city's U.S.-dollar pegged currency, said it would change the formula it uses to set the base rate, reducing the spread above the U.S. federal funds rate from 150 basis points to 50 basis points. The reduction will bring Hong Kong's base rate to 2.5% from the current 3.5%.

On the economic front, Hong Kong’s official foreign currency reserve assets of Hong Kong amounted to US$160.6 billion at the end of September 2008 compared to US$158.1 billion in end of August 2008. Including unsettled forward contracts, the foreign currency reserve assets of Hong Kong at the end of September 2008 also stood at US$160.6 billion compared to 2008 US$158.1 billion in end-August 2008.

The Australian stock market plummeted, giving away gains after the Reserve Bank of Australia unexpectedly cut interest rate by 100 basis points. The local market slumped 5%, recording the biggest one-day fall for both the major averages since January 22 this year. The benchmark S&P/ASX 200 index closed down 230.6 points, or 5.0%, at 4,388.1 and the broader All Ordinaries index lost 228.1 points, or 5.0%, to finish at 4,369.8.

On the economic front, Westpac Bank and the Melbourne Institute's monthly survey report showed an 11% drop in consumer sentiment for October from its levels in September. The index posted a seasonally adjusted reading of 82 points for the month, down from 92.2 points in September.

Meanwhile, approvals for new housing loans in Australia declined in both number and value in August, according to data released by the Australian Bureau of Statistics. The bureau said that the total number of commitments to purchase established dwellings fell a seasonally adjusted 1.9% from a month before to 48,903. In terms of value, overall dwelling finance commitments, excluding alterations and additions, were down by a seasonally adjusted 3.0% to A$17.513 billion.

The New Zealand stock market closed sharply lower, extending its losses for the fourth consecutive trading session. However, the market performed better than other markets in the Asia-Pacific region. The benchmark NZX 50 index closed down 55.9 points, or 1.9%, at 2,948.3 and the broader NZX All Capital index fell 58.32 points, or 2.0%, to 2,993.1.

The South Korean market plunged after it ended a six-day losing streak with mild gains on Tuesday. The benchmark Korea Composite Stock Price Index or KOSPI plummeted 79.41 points, or 5.81%, to 1,286.69, falling to its lowest level since August 2006.

On the economic front, overseas construction orders won by South Korean companies surpassed the record $40 billion mark on strong demand from oil-rich Middle Eastern countries, a government report said Wednesday. The Ministry of Land, Transport and Maritime Affairs said that as of Tuesday orders stood at $40.4 billion, up 45.4% from a year earlier.

Meanwhile, South Korea's National Statistical Office said that retail sales grew 10.5% on year in August, slower than the 12.3% increase seen in July. On a monthly basis, sales fell 2.7%, reversing a 3.4% rise recorded in the previous month. Retail sales excluding vehicle fuel was up 6.5% in August from the previous year.

Elsewhere, the Bank of Korea reported that the producer price index grew 11.3% annually in September, compared to a 12.3% rise in August. On a monthly basis, the PPI fell 0.3%.

The Philippines stock exchange continued plunging on 8 October 2008, posting their sixth successive weak closing, slumping to a twenty-six month low. The PSEi slipped 4.80% or 116.45 points as fears of global economic slowdown continued to haunt investors.

The benchmark index PSEi thrashed 4.80% or 116.45 points to 2,307.74. All six-sub indices tagged along with the composite index with industrial stock losing the most, sliding 108.16 points or 6.43% to 2,620.12.

On the economic front, the producer price index for the manufacturing industry registered an increase of 5.8 percent in August 2008, compared with the year ago level.

Monthly price increases were observed in seventeen major sectors, with two-digit growth observed petroleum products which increased 36.9%, basic metals which jumped 20.6%, textiles up12.4%, food manufacturing up11.3% and rubber and plastic products added 10.3%. On the other hand, three sectors registered percentage decline led by furniture and fixtures by 15.4%.

On a month-on-month basis, PPI declined by 0.2 percent in August. This was brought about by the price decreases exhibited by nine major sectors with single-digit 6.6 percent decrease led by petroleum products.

Indonesia's stock exchange halted share-market trading for the first time in eight years after the benchmark index plunged 10%, the biggest decline since the 1998 Asian financial crisis.

Indonesia's international reserves fell to $57.11 billion on September 29, from $58.36 billion at the end of August. Bank Indonesia said that base money increased to 392.14 trillion rupiah ($41.01 billion) in the fourth week of September, from 343.63 trillion rupiah at the end of August.

In Thailand, the benchmark SET index plunged by more than 6% on 8 October 2008 by 36.37 points to end the session at 492.34. The fall was relatively larger than the previous decline of 4.18% on 7 October 2008. The SET 100 recorded a decrease of 7.38% or 58.21 points to close at 730.28. Likewise, the Set 50 fell by 7.28% or 26.76 points ending the session at 340.62.

During the day the Bank of Thailand left its main interest rate at 3.75%, after a fall in inflation gave it room to focus on the risks to growth from the global credit crisis. Inflation fell in August and September thanks to cheaper oil, petrol subsidies and other government measures such as free public transport for the poor.

In the other regional markets, European shares slumped as global recession fears continued to rock markets and commodity producers in particular, though British banks were mixed after a 50 billion pound government plan to recapitalize the sector.

The U.K. FTSE 100 index fell 3.6% to 4,436.82, the German DAX 30 index dropped 4.4% to 5,091.23 and the French CAC-40 index declined 4.5% to 3,562.91.

On the economic front, the euro zone's economy contracted for the first time in the second quarter of 2008 due to falling investment and private consumption.

The economy of the euro zone shrank 0.2% versus the first three months of 2008, confirming an earlier estimate that had sparked fears that recession had started in the single currency area. Year-on-year, the economy expanded by 1.4%, also in line with its previous reading.

The quarterly contraction was the first since the data series for the euro zone started in 1995. The next weakest result was 0.0 percent growth in the second quarter of 2003.

In U.K, the shop prices index has eased in September as food prices have declined somewhat compared to the previous month, according to data released by the British Retail Consortium.

The BRC shop prices index has risen 3.6% in September from the same month last year, a somewhat softer increase than the 3.8% posted in August, posting the first decline in the overall shop price inflation since March.

In another release, the Nationwide house price index last week showed property prices fell 1.7% last month to stand 12.4% lower than a year earlier - their biggest annual drop since comparable records began in 1991.

However the biggest development of day took place after the closure of the Asian Markets. The Federal Reserve, European Central Bank and four other central banks lowered interest rates in an unprecedented, emergency coordinated bid to ease the economic effects of the financial crisis.

The Fed cut its benchmark rate by a half point to 1.5 percent the Fed also approved a 50-basis point cut in the discount rate to 1.75%. In similar moves, the Frankfurt-based European Central Bank trimmed its key refi rate to 3.75% from 4.25%, while the Bank of England cut its key rate to 4.5% from 5%.

``The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability,'' according to a joint statement by the central banks. ``Some easing of global monetary conditions is therefore warranted.''