Markets and Currencies Worldwide Rise As Dubai Fears Subside

According to a flurry of press accounts published late last week, you would have thought Dubai was poised to sink the world's major economies. Talk about wild speculation. Here are only a few of hundreds of stories illustrating that the fear mongering was wildly exaggerated.

NEW ZEALAND


source The Wall Street Journal

Westpac Bank markets strategist Imre Speizer said calming words from various officials in the United Arab Emirates, including in Abu Dhabi and the U.A.E. central bank, that they will support debt-ridden Dubai soothed markets. Dubai last week announced a standstill on servicing US$59 billion of debt chalked up by its flagship company, Dubai World.

Fear of a domino effect on Middle Eastern banks also subsided, leading to a general move toward risk-sensitive assets such as equities and the New Zealand dollar, Speizer said.

There have also been indications from China that it will be prepared to support Dubai in exchange for oil.

"All risk markets have rallied back and given back some of the panic selling. That's been the story of the Kiwi today."

The Kiwi, which traded down to US$0.7025, it's lowest level since mid-September, in New York trading Friday, bounced back to US$0.7211 in late local trading Monday and could easily march on to US$0.7300, Speizer said.

The currency also received support from strong October building permits data. Statistics New Zealand said permits rose a seasonally adjusted 11.7% from September.

Economists said the data could reinforce market expectations that the Reserve Bank of New Zealand may have to abandon its commitment not to raise its Official Cash Rate before the second half of next year.

"We see the surge in dwelling consents as adding to the likelihood that the RBNZ will start lifting the OCR prior to their previously stated second half of 2010," said UBS Senior Economist Robin Clements.

"We don't see any action on the OCR on Dec. 10, but we do expect the RBNZ to water down, if not drop, the commitment to keep the OCR at 2.5% until 2H10 and discuss the options/issues related to their 'exit strategy'."

The building data helped push swap rates up and bonds fell, although the main driver was the Australian market paring back some of last week's moves, a Wellington trader said.

He said, however, the market was thin and the main focus is on Tuesday's Reserve Bank of Australia rate decision, adding that a 25 basis point hike is almost fully priced in.


INDIA

source RTT News

Better-than-expected GDP data for the second quarter and realization that Dubai's debt crisis would have only a limited impact on local companies and banks helped the Indian market bounce back sharply on Monday.

The weakening of the dollar against other major currencies and a sharp rebound across Asia also improved sentiment. The major Asian markets rose by 2-3% on Monday, led by financials.

According to government data released on Monday, the Indian economy grew at a faster-than-expected rate of 7.9% in the second quarter of this fiscal year versus 6.1% in the previous quarter and 7.7% in the corresponding quarter last year, helped by government's stimulus and a boost in manufacturing and services. For the first -half of this year, GDP growth stood at 7% versus 7.8% in the year-ago period.

The benchmark BSE Sensex opened gap-up and rose to a high of 17,027 by mid-session. Since then, the benchmark pared some intra-day gains amid apprehensions that lower agricultural growth may hit third-quarter GDP growth. A negative trend in the European markets and volatile Dow futures also led to some profit taking in late trading.

The BSE Sensex closed at 16,926, up 294 points or 1.77% and the S&P CNX Nifty rose 91 points or 1.84% to 5,033.


SOUTH KOREA

source Wall Street Journal

SEOUL (Dow Jones)--South Korean shares recouped some of Friday's massive loss Monday as investors took heart from the rebound in European stocks and the limited decline in U.S. stocks Friday.

The Korea Composite Stock Price Index, or Kospi, rose 31.10 points, or 2%, to end at 1555.60 after falling 4.7% Friday.

Continued efforts by governments around the world to reassure financial markets helped ease jitters, said analysts.

The United Arab Emirates central bank said over the weekend that it stands behind its banks and branches of foreign banks.

Also South Korea's finance ministry reassured investors again Monday that the impact of Dubai's debt woes on domestic financial markets will be limited. It added that the government will monitor the situation on a daily basis and take action if needed.

"But the Kospi failed to recover above the 120-day moving average (around 1560) today, indicating investors' sentiment hasn't fully recovered yet. I'd rather describe today's rise as a mere technical one," said Min Sang-il, an analyst at E*Trade Securities.

"Foreigners bought back only about half of what they sold Friday, indicating they still lack confidence about the sustainability of today's rise. Investors want to check how Middle Eastern markets will react to the Dubai problems (after last week's holidays) and how this issue will develop," added Min.

Foreigners and local retail investors were net buyers of shares worth KRW128.5 billion and KRW160.7 billion, respectively. Domestic institutions sold a net KRW294.4 billion.

Investors will also watch closely how European and U.S. stocks perform tonight.

"Investors need to confirm if European stocks can extend their gains after Friday's rebound and see how U.S. stocks react to retail sales results after Black Friday," said Lee Kyoung-min, an analyst at Woori Investment & Securities. Black Friday, the day after the Thanksgiving holiday in the U.S., is traditionally marked with big discounts by retailers.

Financial and construction stocks recovered from Friday's sharp falls on fading fears that European banks may be badly hit by their exposure to Dubai debt, and trigger the kind of global systemic financial meltdown that accompanied Lehman Brothers' collapse last year.

KB Finance Group ended 2.8% higher at KRW58,000, and Shinhan Financial Group finished up 3.2% at KRW45,550.

Woori Finance Holdings jumped 9.4% to KRW14,550 after falling 11.6% Friday.

Among builders, Samsung C&T Corp advanced 5% to KRW45,600, Hyundai Engineering & Construction climbed 3.9% to KRW66,300, and GS Engineering & Construction rose 3.3% to KRW109,000.

Car makers regained strength after they lagged other sectors since September, said Min.

Hyundai Motor added 4.7% to KRW99,000, and Kia Motors advanced 4.6% to KRW17,150.


CHINA

source Wall Street Journal


SHANGHAI (Dow Jones)--The dollar's decline against major currencies because of fading concerns over the Dubai debt issue pushed the U.S. unit lower against China's yuan late Monday.

On the over-the-counter market, the dollar was at CNY6.8271 at 0930 GMT, down from Friday's close of CNY6.8284. It traded between CNY6.8270 and CNY6.8282.

The dollar-yuan central parity rate was set at 6.8272, largely unchanged from 6.8269 Friday.

Analysts said Beijing's pledge to maintain policies to support growth through 2010 shows it won't change the stable yuan policy in the short term.

The ruling Politburo of China's Communist Party met Friday to discuss economic policy for next year, and decided it will continue its proactive fiscal policy and loose monetary policy, according to a statement carried by state television.

Dealers said the dollar's fall in global markets Monday was due to the decision by the United Arab Emirates central bank to provide extra liquidity for banks in Dubai. The decision has restored confidence after Dubai World's debt restructuring plans roiled markets last week.

"The dollar is resuming its bearish trend against the euro and yen on the fading Dubai fears," said a Shanghai-based trader at a local bank.

Around 0930 GMT, the euro was at $1.5042, up from $1.4955 late Friday in New York, and the dollar was at Y86.11, down from Y86.75.

A Shenzhen-based trader at a local bank said: "The market has reached the consensus that the Dubai debt issue isn't big enough to trigger a systemic failure in global financial markets."

Demand for the U.S. unit from local importers helped limit the dollar's downside against the yuan, the trader added.

Offshore, one-year dollar-yuan nondeliverable forwards were at 6.6280/6.6320, down from 6.6330/6.6430 late Friday afternoon.


UNITED STATES

source Wall Street Journal

NEW YORK (Dow Jones)--Treasury prices slipped Monday, losing some of Friday's flight to safety run-up, as worries subsided a bit about Dubai's debt situation.

U.S. government bond prices fell, with longer maturity Treasurys hit harder. The United Arab Emirates' Central Bank stressed Sunday that it "stands behind" the country's lenders, who face potentially heavy losses from their exposure to Dubai World, which is currently struggling with about $60 billion in liabilities. Comments from a Dubai financial official indicating the government would not guarantee the Dubai World debt briefly pushed Treasury prices higher early Monday, but the rally faded as New York trading picked up.

"The general consensus seems to be that broader contagion will be limited mostly to the Gulf region," said analysts at RBC Capital Markets in New York.

Friday, the two-year yield, which moves inversely to its price, fell as low as 0.613%, a year-low. Monday the two-year Treasury was flat at 0.70%. The 10-year yield fell Friday to as low as 3.154%, a level it last hit in May. It was down 8/32 to yield 3.24% Monday. The 30-year Treasury was off 11/32 to yield 4.23% in recent trade.

Two Treasury bills maturing in January were being offered at a negative rate Monday, at around -0.01%, said Ian Lyngen, senior government bond strategist at CRT Capital Group LLC in New York. T-bill rates turned negative late this month as investors began to stock up on the safest securities heading into the end of the year at a time when bills are in shorter supply. When investors buy T-bills at negative rates they are essentially paying the government to keep their money safe.

Meantime Monday, Treasurys responded calmly to early reports of a lackluster beginning to the holiday shopping season. While U.S. shoppers were out in full force over the Thanksgiving weekend, they spent less in almost all regions of the country.

Some 195 million consumers visited stores and Web sites from Thursday through Sunday, the National Retail Federation said, compared with 172 million over the same period last year. Average spending this year though was $343.31, down from $372.57.

Overall, Treasury market participants expect demand for government debt to continue into the end of the year as investors park money made in riskier assets in the safer Treasurys market. Short-term, demand should pick up some Monday, the final day of November, amid month-end buying needs. Treasurys should benefit as investors need to buy bonds to match the monthly adjustment in benchmark indexes. Such month-end buying is more heavy in Treasury quarterly the refunding months of February, May, August and November. The Treasury index gains 0.11 years this month, strong compared to an average month, but a bit tame for November refundings, according to CRT Capital Group.

Data-wise Monday, market participants get a peek into regional manufacturing in the U.S. Data showed New York City business activity posted a fourth consecutive month of expansion in November. Still to come are reports on manufacturing in the Chicago area and in Texas, at 9:45 a.m. EST and 10:30 EST, respectively.