Fed fire up fear in Asian Markets

Sensex, Seoul surrendered more than 2% while Shanghai, Hang Seng gave up 1.6%

Stock market in Asian region closed mostly lower on Thursday, 21 May 2009, as concerns over the pace of economic recovery hurting sentiment and the yen making significant advance against the U.S. dollar.

On Wall Street, the major indices settled in negative territory after a mostly positive day as investors digested a harsher forecast for GDP and unemployment from the Federal Reserve. The Dow Jones Industrial Average lost 52.81 points, or 0.6%, to 8422.04, while the S&P 500 moved 4.66 points, or 0.5%, lower to 903.47. The Nasdaq was off by 6.70 points, or 0.4%, at 1727.84.

The Federal Reserve released the minutes from the latest Federal Open Market Committee meeting, saying the pace of decline in "some components of final demand" appeared to have slowed recently. Consumer spending firmed, and housing activity -- although still depressed --"leveled off" in February and March. But businesses cut production and labor markets deteriorated further in recent months, according to the committee.

The FOMC is now projecting real GDP to shrink by 1.3% to 2% in 2009, vs. prior expectations for a decrease between 0.5% and 1.3%. The committee's projections for the unemployment rate during the fourth quarter were between 9.2% to 9.6%, "noticeably higher" than the latest reading available on unemployment at the time, a rate of 8.5%.

In the commodity market, crude oil fell from a six-month high after the Federal Reserve said that recovery might fail to take root in the U.S., the world’s largest energy consumer. Crude oil declined after minutes of the Federal Open Market Committee meeting on April 28-29 showed that some members want the central bank to boost its purchases of assets to revive growth. Total U.S. daily fuel demand in the four weeks ended May 15 fell 7.6% from a year earlier, an Energy Department report showed yesterday

Crude oil for July delivery dropped as much as 87 cents, or 1.4%, to $61.17 a barrel, and was at $61.21 on the New York Mercantile Exchange at 9:46 a.m. in London. Yesterday, oil rose $1.94, or 3.2%, to settle at $62.04 a barrel, the highest closing price since Nov. 10.

Brent crude for July settlement fell as much as 84 cents, or 1.4%, to $59.75 a barrel on London’s ICE Futures Europe exchange.

Gold rose to the highest in almost two months as a drop in the dollar boosted investors’ interest in the metal as an alternative asset, and a producers’ group said investment demand gained in the first quarter.

Immediate-delivery gold gained for a third day, rising 0.4% to $942.24 an ounce at 11:29 a.m. in Singapore. Earlier, the metal touched $943.10, the highest since March 26, taking gains from year’s low of $802.59 to about 17.5%.

In the currency market, US dollar was sharply off yesterday after FOMC minutes revealed that the committee members had discussed on increasing the size of assets purchase.

The Japanese yen climbed to a 2-month high against the US dollar on Thursday after the U.S. Federal Reserve projected a deeper recession, boosting demand for the Japanese currency as a refuge from the global slump. The Japanese currency quoted at 94.69 per greenback.

The Hong Kong dollar was trading at HK$ 7.7515 against the dollar. Actually The Hong Kong dollar is pegged at HK$ 7.8 to the U.S. dollar but can trade between HK$ 7.75 and HK$7.85 to the U.S. dollar.

In Sydney trades, the Australian dollar were eased from nine month highs against the major currencies as gathering optimism the world economy is on the mend improved investors’ appetites for riskier currencies. The Aussie was quoted at 77.37 cents against the greenback on Thursday.

In Wellington trades, the New Zealand dollar ended the day at US60.85c after rallying to trade as high as US61.05c during the session. The New Zealand dollar climbed back to its highest level against the greenback in more than a week today.

The South Koran won ended at 1,248.6 won against the dollar, up 2.4 won from Wednesday's close, as offshore investors dumped the greenback.

The Taiwan dollar continued to rally further. The Taiwan dollar strengthened against the US dollar as it closed higher at NT$ 32.7380, up by NT$ 0.1170 from Wednesday’s close of NT$33.855.

Coming back in equities, most of the Asian equity markets ended lower on the U.S. Federal Reserve's grim view of the economy, with shares in Japan also hurt by concerns a stronger yen would hurt exporters' competitiveness. However, selling pressure was moderate and we can remain hopeful after a recent data from several parts of the world point toward an economic recovery.

In Japan, the stock index finished the session lower, dragged down by a weak lead from Wall Street and slumps in the shares of financials and property developers as optimism over the global economic recovery waned after the US Federal Reserve reduced its economic outlook for 2009, while a stronger yen weighed on exporters. The Nikkei 225 Stock Average index tumbled 80.49 points, or 0.9%, to 9,264.15, while the broader Topix index retracted 4.86 points, or 0.6% to 881.

In Mainland China, stock market finished the session lower on Thursday following weak led from Wall Street overnight and a sell-off in financial, properties, and energy stocks as optimism over the global economic recovery waned after the US Federal Reserve reduced its economic outlook for 2009 and after Credit Suisse Group AG report said a rebound in economic growth are below market expectation

The Shanghai Composite Index, which covers both A shares and B shares on the Shanghai Stock Exchange, retreated 1.5%, or 40.79 points, to close at 2,610.62.

In Hong Kong the stock finished the session lower, extending loosing streak for second consecutive day, dragged down by financials and properties following weak led from Wall Street overnight, Beijing liquidity concern, and raise in Hong Kong’s unemployment rate. The Hang Seng Index retracted 276.35 points, or 1.59%, to 17,199.49, while the Hang Seng China Enterprise Index, which tracks H shares of Chinese companies, melted 115.33 points, or 1.15% to 9,927.28.

In Australia, the stock market pared back early losses to finish the session down, dragged down by a weak lead from Wall Street and slumps in the shares of financials, retailers, and property trusts as optimism over the global economic recovery waned after the US Federal Reserve reduced its economic outlook for 2009. At the closing bell, the benchmark S&P/ASX200 index slipped 10.70 points, or 0.28%, to 3,813.90, while the broader All Ordinaries trimmed 4.20 points, or 0.11%, to 3,804.70.

On the economic front, Westpac Bank and the Melbourne Institute survey data showed that the consumer inflationary expectations found the median rate of inflation was 2.3% in May, down from 2.4% in April as the economy kept sliding.

The Australian Bureau of Statistics reported Thursday that vehicle sales increased a seasonally adjusted 0.9% on month. In trend terms, which further smooth the seasonally adjusted data, sales were down 1.4% on month. For the full year to April, total vehicle sales were down a seasonally adjusted 20.3%, and were lower by 20.6 percent in trend terms.

In New Zealand, the stock market dipped down in line with most of the Asian markets trailing pessimism in the United States overnight. The NZX50 fell 0.88% or 24.77 points to 2776.311. NZX 15 declined 0.94% or 48.15 points to close at 5067.837.

In South Korea, stock markets closed lower as bleak outlooks for a quick economic recovery set off selling in shipping, tech and other large-cap issues. The benchmark Korea Composite Stock Price Index (KOSPI) fell 14.05 points to 1,421.65.

In Singapore, the stocks index finished the session lower, dragged down by a weak lead from Wall Street and broad based slumps in the shares of financials, properties, and manufacturers as optimism over the global economic recovery waned after the US Federal Reserve reduced its economic outlook for 2009 and rekindled worries over the strength of China’s economic growth. The blue chip Straits Times Index tumbled 58.27 points, or 2.57%, to 2,210.97.

On the economic front, the Ministry of Trade and Industry said on Thursday in its revised report that the Singapore economy shrank a seasonally adjusted 14.6% in the first three months of 2009, after shrinking 16.4% between October and December and a second stimulus package may not be needed as the nation emerges from the deepest recession in its 44-year history.

Singapore's Ministry of Trade and Industry also said that the Singapore's consumer price index (CPI) slowed to 2.1 percent in the first quarter of 2009, down from 5.4 percent in the fourth quarter of 2008 due to a downward correction of global commodity prices from the peaks in 2008.

In Taiwan, stock market ended marginally higher, stretching its upward run in the fifth session, as market attained a new nine-month high. However, today’s gains were capped after Taiwan confirmed its first new flu H1N1 case in Taiwan also forced many major enterprises on the island to kick off anti-pandemic mechanism deterring investor’s confidence. Investor’s cautious approach ahead of first quarter GDP data also limited the gains. The main Taiex share index gained further as Taiex added 15.19 points or 0.23%, closing the day at 6718.81, highest closing since 1 September 2008 when market closed the day at 6813.09.

On the economic front, the Taiwan legislature recently passed the resolution for Taiwan to become a member of the Government Procurement Agreement (GPA), which is approved by the World Trade Organization (WTO), making Taiwan the 41st signatory member.

Joining the GPA enables Taiwan’s enterprises to bid for government projects overseas and vice versa. Huang Chih-peng, director general of Bureau of Foreign Trade (BOFT) under the Ministry of Economic Affairs (MOEA), noted that the BOFT informed WTO of Taiwan’s entry in the GPA right after legislative approval, with the membership to be effective starting June at the earliest. The annual market value created by GPA members is estimated at US$960.3 billion.

The GPA is one of the multilateral agreements under the WTO framework. The WTO stipulates that GPA members should open up government procurement markets with negotiation based on principles of openness, transparency and non-discrimination. Currently the GPA members include the United States, the European Union, Canada, Japan, South Korea and Singapore, many of which have close trade relations with Taiwan.

In India, the key benchmark indices extended losses in late trade as capital goods and banking stocks fell. The barometer index BSE Sensex fell below the psychological 14,000 mark. Weak global markets triggered profit taking after strong gains on the domestic bourses in the past 2-1/2 months. The BSE 30-share Sensex closed down 324.12 points or 2.31%, to 13.736.54. The S&P CNX Nifty was down 59.40 points or 1.39% to 4,210.95.

Elsewhere, Malaysia's Kula Lumpur Composite index was down 0.68% or 7.07 points to 1035.56 while Indonesia’s Jakarta composite index fell 0.02% or 0.29 points ending the day at 1885.72.

In other regional market, European shares snapped a five-session advance on Thursday, as comments from the U.S. Federal Reserve provided a reason for investors to reassess recent optimism over the economy. Regional European markets were also lower, with the U.K. FTSE 100 index down by 0.32% at 4,367, the German DAX 30 index falling 1.71% to 4,954, and the French CAC-40 index, losing 1.62% to 3,250.

Looking ahead for the day, in US, initial jobless claims may reduce further for the week ended 16 May 2009. Leading indicators may show up their first increase in almost a year and the sharpest gain in 4 years, in April as led improvement in consumer confidence and stabilization in jobless claims. The Philly Fed Survey is also expected to show some improvement in May from a month ago. Canada's wholesale sales is set to contract in month on month in March.