Good Morning.
Volatility was the dominant theme in Asia this morning: Australian shares reached a 14-month high, buoyed by the Reserve Bank of Australia's move to cut interest rates a day earlier to defend the local economy against global headwinds. But then the trade deficit news pared gains, leaving the index up only 0.1 percent for the day.
The widest trade deficit in 3-1/2 years of A$2.03 billion sent the Australian dollar 0.5% lower versus the greenback, extending losses to a one-month low of $1.0217. The common currency eased 0.2% to $1.2896, off a three-week low of $1.28035 touched on Monday but drifting away from a 4-1/2 month high of $1.31729 seen in mid-September.
The Australian trade deficit was not the only cold shower: China's official purchasing managers' index for the services sector fell to 53.7 in September from 56.3 in August as growth in the country's manufacturing industry stabilized at a slower pace, putting the world's second-largest economy on course for a seventh straight quarter of slowdown.
Chinese PMI weighted on Hang Seng's performance, the Hong Kong equity benchmark traded 0.02% lower to 20,836.90 after having traded 0.5% higher just before data release.
Japan's Nikkei average which inched up 0.1 percent earlier, was down 0.3 percent.
On the commodity side: US crude fell 0.3 percent to $91.58 a barrel and Brent fell 0.4% to $111.08. Gold inched higher to 1,775.90$ an ounce or 0.07% higher.
Macro reading in China spurred the Asian Development Bank to lower its 2012 regional growth estimate: the ADB today forecast Asia excluding Japan will expand 6.1 percent this year, the slowest pace since 2009 pressuring Central banks to search for measure to tackle slowing growth. Central banks in Japan, South Korea, Indonesia, Thailand, India and the Philippines are scheduled to meet this month to determine monetary policy as the region gauges the need for more stimulus measure.
Going through some of the measures taken in the past months (India's central bank reduced the amount of deposits lenders must set aside as reserves last month, while China and Vietnam have cut interest rates and South Korea announced 5.9 trillion won of spending and tax relief ) we can easily conclude that their effectiveness is in doubt.
With region's inflation forecast for 2012 reduced to 4.2 percent from 4.4 by the ADB today, government will be freed by inflation concerns to put in place new inflationary measures. And if the market one day will figure out that these measures are ineffective? and what if inflation will start to pick up at a faster pace?
Markets have been narcotized, stimulus measures have worked as momentary steroids, hopes on Spanish bailout request are refraining investors to short the market.
The question is: If the solution is not in new stimulus measures, what is the right solution to have a healthy economic growth?
Have a great one.
Originally posted at www.77sigmatrading.com
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