Markets Softer On Poor Data, Fed- Yen Advances

Asia Pacific markets were mixed after US equities slumped on disappointing economic data and talks of further quantitative easing measures from the Fed. Weaker than expected personal spending, factory orders, pending home sales, and consumer confidence reports, confirmed fears that the pace of the US recovery is slowing. The Hang Seng index and the Shanghai SE composite posted gains of 0.6% and 0.4% respectively, while the S&P/ASX 200 index slid 0.7%. The Nikkei 225 was the worst performer, falling more than 2.1% as concerns regarding the health of the US economy and persistent strength in the yen pressured stocks. Japanese exporters were pummeled as the nation's currency advanced to an eight-month high against the greenback at 85.34. The yen remains in demand amid relatively elevated risk aversion levels, with bond yields softer across the board. Yields on the US 2-year note fell to record lows on mounting speculation that the Federal Reserve may resume treasury purchases in an attempt to revive the faltering recovery. We note a strengthening correlation between the spread on 2-year US and JGB bonds, and the USD/JPY pair. The yen will approach a 15-year low at 84.82, with downside risk increasing below.