Asian Shares Post Small Gains, U.S. Futures Mixed

Asian trade: Asian markets are trading barely above the breakeven line. Earlier, the U.S. equity markets closed in red, despite that the Fed announced new measures to tackle the credit crunch just one day before.

Tonight, Asian markets are posting small gains. The most active in the Asian markets were the financial shares, helped by the Fed’s decision to reduce the overnight rate, and the transportation sector, aided by lower oil prices. As such, the Nikkei gained 74.50 points (0.87%) to 8,687.04, while the Australian S&P/Asx fell 11.80 points (0.33%) to 3,558.80. U.S. futures traded mixed until now, having the S&P rise 0.40 points, or 0.04%.

The Japanese economy takes hard hits from the credit crunch. The economy is facing a rather severe recession and the weak internal consumption only makes things worse. Some union workers already excluded the possibility of demanding higher wages in 2009, while the main business groups in Japan declare they are doing everything they can to keep the maximum number of employees next year. Out of the public traded companies in Japan, some had cut their earnings forecast in half for 2009, showing the magnitude of the downturn. Predictions are that the Japanese economy is going to contract by almost 1% in 2009, bottoming only by the end of the year.

Crude oil declined, even though the dollar sold across the market and OPEC announced a cut in production. Crude oil for January delivery fell $0.20 to $44.70.

Gold is continuing to advanced, reflecting the dollar weakness. Bullion for immediate delivery rose $0.10 to $864.70.

Previous Wall Street trade: The key question for market stability from this point will be to what extent investors believe the Fed has not run out of "ammunition" despite taking its main policy rate to a range between 0.00% and 0.25%. The massive shift of private debt to the public sector, implementation of the TARP and recapitalization of the banks has probably averted a collapse of the banking system. The question now is whether a policy of quantitative easing can do enough to spur economic growth.

Of course, President Elect Obama has promised to quickly implement a huge economic stimulus, likely to be in the range of $700 billion to $1 trillion in the first year. Still, in order for the economy to come out of what will likely be its worst recession in the post-war period, housing will need to lead the way which means mortgage rates will still need to fall further, probably by at least another 100 or so basis points.

Previous European trade: In Europe, stocks were mixed as concern that bank earnings may deteriorate further overshadowed a rally in construction-related companies. The U.K. Ftse rose 15.11 points (0.35%) to 4,324.19, while the German Dax fell 21.53 points (-0.46%) to 4,708.38.