Asia 200509 Morning Wrap

Morning all,

Some night it was for the US overnight market - The wipesaw move that bounced up and down on the 0.7% mark suggests that bears obviously haven't took themselves out of the market after Monday's move. We are continuing to test this resistance on 8500 on DJ and this 900 mark on S&P500. Again, leads were obviously mixed, with Home Depot giving upside outlook on profit, whilst big banks are seeking to repay TARP loan is giving signs that the credit market is continuing to stablise. Housing market also had signs for stablisation, from the weekend and Monday, as NAHB index suggested that housing confidence had significantly improved from a year ago, and the crude has also breached $60.

However, the wipsaw moves saw all indices to fall in the last 75 minutes of trading, as Apr US housing starts and permits plunge to record lows on apartments, falling 13% to an annual rate of 458,000 and a 46% tumble in multi family starts, while this theme of continual credit pressure on consumer side is surfacing with AMEX cutting 4000 staff to set asie reserve for bad debts.
Though the treasuries had little change, while risky currencies continue to maintain its high for the year. The indices were led down by banks, as people continue to not believe in this mortgage market.

Looking ahead, I believe the asia markets may start off slightly up, but will taper off throughout the day to end in red, given the mixed leads. There will be fights to defend the 3800 level for ASX, 9000 level for Nikkei, and 17000 level for HSI. I believe we will be ending the day near those levels, though I remain the stance of bears will be coming out and this is merely a second test for resistance.

Therefore, I would remain to be a seller of financials, given the leads in US, and would remain to be in the theme of sector rotation into defensives. Given last session's pullback for defensives, this may be a buy opportunity to get into names such as Towngas (1071), and HK & China Gas (3 hK) for gas utility play, and Huadian and CLP Holdings for the power utility play.

I think the oil sector will have a mix story today, as moves will become wipsaw with a higher crude price and a jump in Baltic Dry, though weak volume over the last session may suggests pullback. This will be a similar story for the material sector.

I remain to see USD to strengthen as market starts to pullback, as investors seek for quality, thus, I would remain to be a buyer of precious metals on the pullback.

That's about it today.

Happy trading!

ongy out.