Many of the major Asian bourses posted modest gains yesterday with the Nikkei up 0.15%, Hang Seng up 0.93% and All Ords up 0.14%.
The Asian credit benchmarks remained unruffled yesterday with the iTraxx Asia ex Japan 0.31 bp tighter.
Observers in China say that raising interest rates, which the central bank has already done so five times so far this year, is not enough to stem inflation. According to them, China needs to fast track the appreciation of the yuan. With China's widening trade surplus, 33% in August from a year earlier, yuan's appreciation will increase export prices and ease money inflows.
The turbulent politics and stalling economy of Japan, reinforce market expectations that the BoJ will leave its key overnight lending rate at 0.5 percent on Sept. 19. The Japanese economy contracted 1.2% in the second quarter with depressed corporate investment and reduced consumer spending. Sporadic statistics such as the surge in machinery orders hint of a silver lining on the nimbus of economic contraction.
Northern Rock, one of Britain's large mortgage lenders, becomes the highest profile UK casualty of the so-called credit crunch as it was impelled to borrow emergency funding from the Bank of England. The US subprime mortgage crisis drained liquidity from the money markets which Northern Rock borrows from, sending the company cap in hand on the doors of the Old Lady of Threadneedle.
The role of the ratings agencies will face scrutiny as European Union finance ministers in meet Portugal. In response to the current crisis, the meeting aims to establish regulatory agreement to help maintain global financial stability and transparency in the banking system. They will also examine regulation of banks' off-balance sheet investment vehicles which is the crux of the present ructions.
US Stocks advanced with the S&P 500 up 0.84% and the Dow Jones industrial up 1%. Market sentiment got a lift from announcement Countrywide Financials, the largest US mortgage lender that it had lined up $12 billion in additional financing. The Federal Reserve added a positive note when it said the outstanding volume of commercial paper fell by a much smaller amount this week than in the previous four weeks, a nascent sign that the corporate short-term commercial paper market could be stabilizing.
The Asia stock markets look set to end the week on a positive tone with the Nikkei up 1.13% and Hang Seng up 1.02% late this morning.
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