Down day for Asian markets after massive falls in US and Europe

The European issue will not only dominate Asian trade today but global traders all around the world will be eyeing the impact of Italy’s economic mismanagement.

The numbers speak for themselves – Italian 10 year bond yields were last trading at 7.21% compared to German 10 year notes at 1.72%. The numbers say it all – clearly, there is diminishing confidence in what Italy has to offer at the moment. There is room for improvement through if authorities can convince the market that liquidity will be provided, at least in the short term as Italian debts mature. Italy still has the capacity to meet its short-term commitments, the medium-long term is now in question.

The regional response in Asia is falling for more Chinese stimulus. With inflation cooling to 5.5% last month and likely to trend even lower in November and December, 2012 could see money being ploughed back in to stimulate the region. Media reports cite Goldman Sachs selling around $1.1bn of shares in Industrial & Commercial bank of China. That’s around 6% below yesterday’s closing price so there will be a lot of pressure on regional financial institutions in today’s trading, even if the reports are incorrect.

In major currencies, the EUR/USD was last trading just above 1.35, USD/JPY at 77.80 and the AUD/USD 1.015 with parity possibly being re-tested over the next few trading sessions as the Reserve Bank of Australia contemplates more rate cuts and risk appetite reverses.

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