Asia Market Update - Traders turn cautious ahead of existing home sales data

- Aussie economy expected to grow at a moderate pace in the near term: (AU Jan Conference Board Leading Index: -0.2% v 0.2% prior; Coincident +0.1%) The leading index fell slightly in January due to a large negative contribution from the rural goods exports component. There were increases in almost all other components making up the leading index. The index decreased for the first time in the last six months. The Conference Board pointed out that the leading index suggests that the Aussie economy is likely to grow at a moderate pace in the near term.

- Forex: The USD took a breather and held steady during Asian trade after a rally during the U.S. session. Forex trading was quiet as traders waited out the release of existing home sales data. Some suggest that a stronger than expected reading will not give the USD much of a lift, given the built up sentiment from the past week's worth of weak housing data. Expectations for existing home sales during February is -2.5% (if this contraction is realized, it would be the biggest drop in seven months).

- Asian equities traded cautiously after yesterday's rally. Traders reevaluated the intentions of the Fed and decided to take some profits ahead of the existing home sales data out of the U.S. The Nikkei 225 is marginally higher after rising more than 250 points during the prior session. Gains on the Nikkei are being led by shares with domestic exposure after data from yesterday showed Japan's nationwide land prices rose for the first time in 16 years. Exporters also gained as the USD/JPY pair rose above 118.00. The Kospi index is lower by about 0.15%, as some shares are declining on the firmer oil price. The ASX200 index is little changed with gains in oil stocks being counterbalanced by declines in exporters due to the AUD trading near record levels. The Hang Seng saw some early profit-taking in blue-chips, but managed to move back into positive territory as the session progressed.

- Subprime outlook: Forex options trading show that investors turn more optimistic that the U.S. will be able to weather an increase in subprime mortgage defaults. Option dealers are saying that demand is falling for options that protect against a drop in the dollar compared with the yen. Today's jobs data should ease fears that subprime mortgage defaults will damage the broader economy by limiting access to credit and slowing consumer spending.

- Sign of confidence in China's boom: BHP Billiton approved a US$1.85B spending plan on iron ore expansion. Several analysts call this an aggressive expansion for BHP, showing the company's confidence in the growth of the Chinese economy.

- Commodities: Crude oil is higher for the 4th consecutive session on speculation that U.S. gasoline demand will be strong during the summer driving season. Spot gold is holding near session lows after the USD rebound. Shanghai copper is higher by more than 1%, tracking the LME contract.

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