credit update 12 10 07

The Asian stocks have hit soprano levels yesterday with the Nikkei up 1.64%, Hang Seng 1.97%, All Ords up 0.52% and Straits Times up 1.61%. Meanwhile, the Asian credit benchmarks halted their decrescendo to end barely a whimper from the levels charted the day before.

Australia's unemployment rate dropped to 33-year low of 4.25% in September, underscoring the country's strong economic fundamentals but at the same time spurring expectations of a rise in interest rates. The Reserve Bank of Australia previously raised interest rates to an 11-year high of 6.5% in August in response to surging growth and rising inflation.

As widely expected, the Bank of Japan kept its key interest rate unchanged as it takes more time to assess the extent of the credit market turmoil and the prospects of a slowdown of the US economy. The BOJ has intimated its readiness to "normalize" (increase) rates once it determines that the US economic slowdown will be limited. This comes as Japan's current account surplus jumped 42.1% year-on-year in August and as Moody's raised rating on yen-denominated sovereign debt to A1.

The rally of US technology stocks of recent days lost steam after a frantic sell-off dragged the NASDAQ down 1.4%, while the S&P 500 fell 0.5% and the Dow Jones Industrial slid 0.5%.

The US housing sector, the locus of the US subprime turmoil, sees home foreclosure filings doubling last month from a year ago; there is also an upsurge in late payments and a drop in home sales, all of which suggest of the mortgage crisis not abating. Moody's lowers rating of home builders Centex, Lennar and Pulte Homes to Ba1. The ratings agency sees no improvement in the US housing market until 2009 at the earliest. A whiff of fresh air comes from data revealing US trade gap has shrank in August on the weakening dollar beefing up export sales, as well as from a drop in claims for jobless benefits.

The US seeks relief from the World Trade Organization on the alleged deficiencies in China's legal regime for protecting and enforcing intellectual property rights of American music, movies and publications all of which are being undermined by rampant piracy.

Asian stocks are mostly in the red this morning as investors look to locking in some of yesterday's gains.