Asian Market Update: Post-FOMC Rally in US Loses Steam Late in Asia, Dollar Hits Fresh Multi-Week Lows Across the Board

A broad-based equity rally coming on the heels of the Federal Reserve taking the gloves off in its effort to prevent a deep deflationary recession proved to be short-lived in Asia. Nikkei225 opened the session up 2% but reversed those gains sharply coming out of its mid-session break, selling down to -1.5% before reverting back to unchanged territory. Likewise, equities in Korea traded up as much as 3.4% early on but finished down by 0.3%, and S&P/ASX pared the 2% rally to close just 0.4% higher. S&P futures were seen surrendering about 1% with profit-taking bursting upward momentum following the 5% prior session gain in the index - all in spite of Treasury Secretary Paulson succumbing to political pressure and confirming relief for the auto sector coming from the TARP funds.

- In Tokyo , massive easing action by the Fed has prompted more vociferous prodding of Bank of Japan by the Aso cabinet officials ahead of the central bank decision on Friday. Finance Minister Nakagawa appeared to cheerlead additional easing, expressing hope that BOJ would do what is needed for the economy. In turn, Economic Minister Yosano, who has been highly vocal recently about the BOJ taking on a more active role, said that while a rate cut would be unlikely to directly help firms' finances, it was also not likely to affect the currency rates. Meanwhile, according to JM Morgan interest-rate swap rates, the probability of a BOJ rate cut has more than doubled to 52% after the Fed. Nikkei real estate names were particularly favored on expectations of lower rates, with Mitsubishi Estate and Sumitomo Realty gaining ground. Among other notable shares, retailer Aeon was slightly higher after increased stake by Mitsubishi, steelmakers Hitachi Metals and Kobe Steel continued to underperform on demand concern and were sold lower on sales downgrade, and Honda Motors declined sharply on a cut in FY08/09 guidance and slashed by 50% dividend.

- Australian markets outperformed slightly, boosted in part by a dollar selloff-inspired rally in commodities and a drop in corporate bond risk seen in Aussie credit default swaps. Precious metal miners Newcrest and Sino traded higher on a notable gold bounce, while Woodside Petroleum rallied on expectation of higher crude prices following tomorrow's confirmation of OPEC production cuts. In Korea , Daishin Securities was among the more widely traded shares after tripling its November income on a y/y basis.

- Volatility in currency markets returned with a vengeance as USD fell to multi-week lows across the board following the Fed action to take target rates down to the lowest level among all industrial nations. If "competitive currency devaluation" has been the budding theme in the FX markets, the latest move should in fact be construed by all other monetary authorities as throwing down the gauntlet. EUR/USD was up by over four big figures in the aftermath of the Fed, rising above 1.4170 - a level not seen since late September. GBP/USD briefly traded above 1.5720 for the first time since early November, and USD/CHF dipped below 1.11 for the first time since Sept 29th. On a comparative basis, both EUR and CHF continue to outperform the Sterling , while trading relatively unchanged against each other. 1.5720 EUR/CHF level presents a critical support for the cross pair in a quest for relative supremacy to dollar selling momentum. Japanese Yen remains a one-direction trade vs USD, gaining across the board in spite of the broad US equity rally. USD/JPY traded as low as 88.20 - a bottom seen last week on failed auto bailout vote. EUR/JPY traded rangebound, with anti-dollar EUR forces countered by JPY buying interest. GBP/JPY picked up marginal ground in the wake of post-Fed volatility, briefly trading above 139. Japan 's top currency official Shinohara said he was monitoring FX markets closely, and although rapid forex moves were not desirable, no intervention was forthcoming. Across commodity-oriented pairs, USD lost additional ground, with AUD/USD gapping two big figures and subsequently testing 0.70 level in Asian hours and USD/CAD selling down to 1.1950.

- At the time of writing, crude oil is higher and trading above $44.00/bbl. Oil prices are currently rising as the USD has weakened across the board following the actions by the Fed. Of note, during the US session crude closed lower by more than 1%, despite the fact that the USD weakened after the larger than expected Fed rate cut. Now the focus of energy markets has moved to today's OPEC meeting. Earlier today, the Saudi oil minister said that all gulf ministers support an OPEC cut of 2M bpd. Also, OPEC's President has asked Russia to lower its output by 400K bpd and for other non-OPEC producers to lower production by 200K bpd. Spot Gold is higher as the EUR/USD has moved to its highest level since early Oct.