Credit Crisis, Round 2?

- Summary of trade between 17:00 ET and 23:30 ET: As was expected after the carnage on Wall Street, Asian stock markets came under heavy selling pressure at the start of trade. Decent rebounds in Tokyo and Australian stocks towards the end of the morning encouraged some carry trades, and the JPY weakened. Commodities came under significant selling pressure, with Shanghai's January zinc contract hitting a record low. There was no economic data released during Asian hours, and currency markets tracked the movements in equities. Crude struggled to move above $94/bbl. Several senior Japanese officials spoke today, but most of them echoed comments made over recent sessions and markets did not show any reaction. Economics minister Ota said that they are focusing more on downside economic risks. There was some chatter of a soft nonfarm payrolls number, but U.S. 10yr yields moved higher in Asia. However, the USD was softer against the EUR, CHF, CAD, AUD and NZD (suggesting that most of the short-covering ahead of tomorrow's nonfarm payrolls has already run its course)

- Forex: Asian bargain hunters were quick to buy the AUD/USD after today's sell-off provided a more attractive entry point. Despite today's market turbulence, interest rate futures continue to price in a 90% probability of a Reserve Bank of Australia rate hike at next week's meeting. The CAD was firmer against the USD despite some analysts suggesting that the CAD is overextended. Between 17:00 ET and 23:21 ET: EUR/USD +0.14%, USD/CHF -0.14%, USD/CAD -0.21%, AUD/JPY +0.90%, AUD/USD +0.72%, NZD/USD +0.60%, NZD/AUD -0.10%, CHF/JPY +0.33%

- Aussie financials weather the storm, Japanese financials don't: The Nasdaq bank index (made up of U.S. banks) fell 4.68% today, its worst one-day loss in more than seven years, but Aussie financials held up well as other Australian shares tumbled. Recent economic data and earnings releases suggest that Australia remains relatively insulated from the U.S. credit crisis, encouraging bargain hunters to buy Aussie financials on dips. There is mounting evidence that round 1 of the credit crisis has hit Japanese banks a lot harder than expected, and financials led the declines on the Nikkei as some fear round 2 of the credit crisis has just begun.

- Equities: Between 20:00 ET and 23:14 ET the Nikkei is down by -1.71%, Australia's ASX is -1.60% and South Korea's KOSPI is lower by more than -0.90%. Japanese exporters came under selling pressure as investors continue to worry about the outlook for the U.S. economy. Resource stocks dragged down the ASX and KOSPI. Chinese equities are lower on concerns that new IPOs will reduce flows into other Chinese stocks. China's top think tank, the NDRC, said that it would improve its macroeconomic controls. The Hang Seng is lower by more than -2.0% as blue chips came under selling pressure.

- Commodities: Crude oil gained 0.49% between 18:00 ET and 23:18 ET, last quoted at $93.99/bbl, but was unable to move above $94/bbl with any conviction. Spot gold had a choppy session and lacked direction as traders wait for nonfarm payrolls data to provide more clarity on the outlook for the U.S. economy.

(by Eben Esterhuizen and Gavin Pierce)