After a few straight days of weakness in the US, Asian markets have basically adopted a wait and see stance. The underlying market sentiment indicates that most markets want to rally. I am not saying that these are terrible naive optimists, but your read markets and you call them as such. Its ripe for a bear market rally. Getting the rally done is no easy task as every now and then earnings disappointments will put a halt to it.
While attention has focused on Citigroup's likely $10 billion quarterly loss next week, we have had other bombs as well. Deutsche Bank's shares tumbled 12% after it expects to post a fourth-quarter loss of about €4.8 billion, or $6.33 billion, citing "exceptional market conditions." In Germany, Commerzbank fell 10% while Deutsche Postbank lost 15%. Swiss banks tracked the broader sector, with UBS shares falling 2.8% while Credit Suisse shed 6.4%. The news slammed the banking sector, which was already reeling from a Morgan Stanley note stating that Europe's largest bank, HSBC Holdings, may have to raise as much as $30 billion in capital and halve its dividend. HSBC slumped 8%, and Barclays followed, losing 6.8%. In Paris, shares of BNP fell 6.1% while Societe Generale stood 6% lower. Royal Bank of Scotland lost 4.5%.Other key bellwether earnings reports due Thursday will be from JP Morgan, Intel and Genetech.
On the non earnings factor, Bernanke’s LSE speech was greeted as some comfort to be positive. The other comforting development was that Senate Majority leader Reid believes he has enough votes to get approval for the additional $350bn of the TARP.
On mainland China, the Shanghai Composite surged 3.5% to 1928.87. Earlier in the day, China revised its gross domestic product growth rate upward for 2007 to 13%, indicating it may have overtaken Germany as the world's third-largest economy. Crude oil prices rose 3% in electronic trade after Saudi Oil Minister Ali Naimi said the country would cut its February production by more than the target set by OPEC in December.
Certainly not an easy time to make money. But I can see Asian markets trying to decouple, albeit for probably a short period. Still its a dicey tug of war. I am of the view that Asian markets will rally harder when US and Europe put up some gains. If they continue to weaken, Asian markets are likely to be flat rather than following them south in this quarter. Not a particularly easy time.
p/s photo: Sandara Park