Asian markets whacked on US worries

Risk aversion in its prime as stocks fall across the board

Asian markets slumped today as the US dollar rose sharply and the investors grew worried about the US economic prospects and a very sharp fall in the US stocks kept the sentiments sluggish in Asia. Fed decided to keep rates in their record low range of 0.00% to 0.25% and said they would keep them there for an extended period as expected. The Fed also announced that it would reinvest mortgage bond proceeds into government bonds rather than more mortgage debt, ensuring the start of another round of quantitative easing. This pepped up the US stocks from their intraday lows on Tuesday but the sentiments turned decisively bearish yesterday as the Dollar cruised along at a very nice pace to strike two and half week highs and poor economic data from the US fanned worries about the economy.



The US government ran a budget deficit of $165 billion in July, the Treasury Department reported yesterday, marking the 22nd consecutive month of deficits. Outlays totaled $321 billion in the month, while receipts were $156 billion. It was the second-highest July deficit on record. The US trade deficit also widened sharply in June as massive imports of consumer goods took a toll. The deficit expanded by 18.8% in June, reaching $49.9 billion from $42.0 billion in May - this one-month worsening in the deficit is the biggest since July 2009.

US stocks fell by massive margins on these cues, giving up all the gains post FOMC. The Dow plummeted 265.42 points or 2.5 percent to 10,378.83, the Nasdaq plunged 68.54 points or 3 percent to 2,208.63 and the S&P 500 tumbled 31.59 points or 2.8 percent to 1,089.47.

This shaped up into a poor start for Asian markets. The Japanese stocks closed in red on concerns about slowdown in economic growth. The strengthening of the local currency against the US dollar led the decline in exporters as the markets continued to add to its recent string of losses. The benchmark Nikkei 225 Index closed down 80.26 points, or 0.86% to 9,213, while the broader Topix index of all First Section issues was down 6.67 points, or 0.80% to 828.

On the economic front, results of a survey carried out by the Cabinet Office revealed that consumer sentiment index fell to 43.4 in July from 43.6 reported in June. Households' consumer sentiment, at the same time, came in at 43.3, down from 43.5 in June, the results reveal. Further, the Ministry of Economy, Trade and Industry revealed that industrial production in the country declined by a revised 1.1% in June. Shipments increased 0.2% in June, in contrast to the 0.2% decline estimated earlier. Inventory rose 0.7%, while the inventory ratio dropped 1.7%. On a yearly basis, production was up 17.3%.

The Australian market also continued to lose for the second day amid worries about the commodity prices and weak trading across other markets in the region. Weak labour market data also added to the sell off as the recent drop from a six-week highs extended for the benchmark S&P/ASX200 Index, which declined 54.60 points, or 1.23% to close at 4,401 points. The All-Ordinaries Index ended at 4,422, down 57.30 points, or 1.28%.

On the economic front, a report released by the Australian Bureau of Statistics revealed that the unemployment rate unexpectedly increased by 0.2% to 5.3% in July. The economy added just 23,500 jobs in July, following the addition of 45,900 jobs in the previous month.

In China, stocks slid lower on weak global cues and a grim imports data earlier in the week. China's key stocks tumbled to its lowest in two-and-a-half weeks as China's insurance regulator announced that it would modify rules to allow insurance companies' to invest as much as three times the previous limit in overseas capital markets, triggered an early rally in property issues. The Shanghai Composite Index closed at 2,575.5 points, breaking under the critical 2600 points level.

In Mumbai, the key benchmark indices provisionally closed flat after moving between positive and negative terrain in late trade. Shares of India's biggest commercial bank in terms of branch network, State Bank of India (SBI) surged nearly 7% after it reported strong Q1 results. Auto and realty stocks also rose. Tata Motors hit record high extending recent strong rally triggered by robust Q1 result.

The industrial output rose 7.1% in June 2010 compared with revised 11.3% rise in May 2010, the latest data showed. Manufacturing grew 7.3%, mining sector grew 9.5%, consumer goods sector rose 8.3%, capital goods sector expanded 9.7% and electricity generation rose 3.5%.

As per provisional figures, the BSE 30-share Sensex was up 5.72 points or 0.03% to 18,075.91. The index lost 155.41 points at the day's low of 17,914.78 in early trade. The Sensex rose 43.43 points at the day's high of 18,113.62 in afternoon trade.

In other markets, the Hang Seng index in Hong Kong lost 0.89%, the TSEC index in Taiwan shed 0.83% while the Singapore stocks eased by 0.75%.

US dollar moved under 1.2800 in the late Asian trades, continuing to add gains after a sharp rebound yesterday. Dow futures were in red initially but then churned out some modest gains. Commodities were mixed after an early sell off. WTI crude is at $77.25, down 77 cents from the previous close after hitting a low of $76.92 per barrel. Gold mostly stayed $1200 per ounce mark.