credit update 10 10 07

Most of the Asian bourses edged up yesterday with the Nikkei up 0.56%, Hang Seng up 1.65%, All Ords up 0.31% and Straits Times up 1.19%.

Asian credit benchmarks registered general improvement with the iTraxx Asia ex Japan 1.69bps tighter.

UK's Financial Services Authority admits that its monitoring of the troubled Northern Rock was inadequate, revealing further regulatory weaknesses of the financial system. In particular, the trifurcation of responsibilities between the Treasury, Bank of England and FSA has potentially made it more complicated to take decisive action. Meanwhile, the Bank of England dampened market expectations of a rate cut when, although acknowledging the current financial market turmoil is not yet over, it said it will not set rates to "insulate the banking system from the repricing risk," underscoring more the threat of inflation to the economy.

The release of last month's Fed meeting minutes lifted US stocks with the Dow Jones Industrial up 0.9% and S&P500 up 0.8%. The CBOE volatility index retreated 7.67%. The report whetted market expectations of further rate cuts before the end of the year.

In response to the recent spate of Chinese-made product recalls, US legislators decree to raise fivefold the fine leviable against makers of unsafe products. This is part of efforts aimed at increasing inspections and tightening rules governing imported products.

Standard & Poor's downgrades the sovereign credit rating of Kazakhstan to the lowest investment grade category due to the country's difficulty in refinancing maturing international debt, waning domestic depositor confidence, falling international reserves and other woes in its financial system. Despite this, the ratings agency said its long-term outlook for the country is stable. On the other hand, S&P said it will not cut India's credit rating based solely on the schism over the proposed nuclear agreement with the US.

Singapore's economy grew 6.4% in the third quarter, higher than expectation, driven by increased manufacturing output and robust financial services. The city-state is ranked as the world's most business-friendly economy for two years in a row. Economists however warn of the increased risks of inflation.