Asia-Pacific Markets Overview 09/22/2011

Asia-Pacific markets are expected to react warily to the U.S. Federal Reserve's move to stimulate growth by purchasing $400 billion in long-term Treasury securities with proceeds from the sale of short-term government debt.

In the US overnight, the major indices finished on their lows of the session following the release of the FOMC statement in the last few hours of trade. As expected, they announced they would spend US$400 billion to rebalance its $2.87 trillion portfolio by selling short-term notes and using the funds to buy longer-dated treasuries. However, investors reacted most to the Fed's grim outlook. "Recent indicators point to continuing weakness in overall labour market conditions, and the unemployment rate remains elevated," the Fed said in a statement. "There are significant downside risks to the economic outlook, including strains in global financial markets."

The S&P 500 was the worst performer, down 2.9% while the Dow Jones Industrial Average and NASDAQ were 2.5% and 2% weaker respectively.

ASX 200 Morning

Locally, the ASX 200 is called to open the session 2.4% lower at 3974 despite following the disappointing overnight leads. We are expecting broad-based weakness after all US sectors finished firmly in the red.

The financials, materials and energy sectors are likely to be the worst performers locally after the US sectors were down 5%, 4.5% and 4.2% respectively

In terms of materials, base metal leads from the LME were all down between 0% and 3.9%. In London trade, Rio Tinto and BHP Billiton fell 4.2% and 3.9% respectively while BHP's ADR is calling the local name down 3.5% at $35.84.

Commodities

Gold stocks could see some profit taking too as the precious metal futures retreated 1.8% to US$1781.50/oz.

Elsewhere, financial will be belted in sympathy with their US counterparts. The likes of Bank of America, JP Morgan, Wells Fargo and Citigroup were all down between 3.9% and 7.5%.

Crude oil futures will also weigh heavily on local energy names after the black gold fell 2.5% to US$84.80/bbl.

In summary, it looks like we're set for a session of heavy selling as the world reacts to the Fed's downbeat outlook for the US economy. There is not much in the way of local economics apart from a speech from Deputy RBA Governor Lowe at 8.30am this morning. However, across the region, 12.30pm will see the release of the HSBC Flash Manufacturing PMI figures out of China. Let's hope this comes in stronger than last month's reading of 49.9 and helps pare further losses.

From Ben Potter, Market Strategist, IG Markets