credit update 18 09 07

Except for China, many of the major Asian bourses dipped yesterday with the Hang Seng down 1.20%, All Ords down 0.51% and Straits Times down 1.70%.The US Justice Department's investigation on the alleged 'anti-competitive practices' of makers of flash-memory chips sent Samsung Electronics, worlds biggest NAND flash memory maker, and others tumbling down while falling crude prices drove down oil producers BHP Billiton, Woodside Petroleum and PTT Pcl.

The Asian credit benchmarks posted a slight tightening, with the iTraxx Asia ex Japan 2.5bp tighter.

In an effort to stanch the frenetic withdrawals by Northern Rock depositors, UK finance minister Alistair Darling said if necessary the government and the Bank of England would guarantee all existing Northern Rock deposits during the current instability. Shares of other banks fell as investors fear these banks could be in the same funding predicament as Northern Rock. The current controversy is regarded as an incipient sign of a wider economic ramification in the offing. Former Fed Chairman Alan Greenspan warned that UK may even be more exposed to a property slump and consumer debt crisis than the US.

Contrary to prognosticators at the onset of the subprime crisis saying the credit world as we know it is coming to an end, Greenspan believes that credit default swaps, CDS, are here to stay and have demonstrated their capacity to diversify risk. He added, however, that collateralised debt obligations (CDO) volumes "will never get back to the levels and structures that they were, because now everybody knows you cannot price them." But this is an absolute statement, and if we are to believe that Greenspan is an heir to Ayn Rand’s philosophy of “reason as the only absolute…” =)

While voices from many sectors clamor for more stringent regulations in the financial system, US Treasury Secretary Henry Paulson called for temperance in the introduction of new regulation, realizing that the current situation is conducive to hastily introduced measures which in the long-run could be counterproductive. With many regarding the multifarious financing techniques and innovations as contributory to the excesses of the subprime mortgage lending, Paulson does not discount the benefits from these and thus calls for a balance between regulation and innovation.

While the US grapples with its burgeoning trade deficit with China, Europe's trade deficit jumped 22% in the first half of the year. Imports from China increased to 78.5 billion euros ($108.9 billion) while exports rose to 28.1bn euros, in the first six months of the year.

All eyes on the Fed today when it releases its decision on interest rate.

In a day of light trading, the US stock markets dipped with the S&P 500 down 0.51% and Dow Jones Industrial down 0.29%. Bad news from Northern Rock in the UK, Merrill Lynch's job cuts and Greenspan's warning of the possibility of recession dampened market sentiments.

Many of the major Asian stock markets are in the red this morning.