US rally proves short-lived, Asian markets may trade lower

<p>Asian stocks are set to open flat today after lower leads from the U.S. and Europe where bond yields remain elevated. Germany’s Chancellor Angela Merkel […]</p>

Asian stocks are set to open flat today after lower leads from the U.S. and Europe where bond yields remain elevated. Germany’s Chancellor Angela Merkel continues to take a hard line approach towards the debt crisis, dismissing calls for an expanded ECB role, instead preferring tighter budget limits as the only long term solution.

While Merkel continues to take on this approach, ECB President Mario Draghi signaled that the ECB could do more to fight the crisis in return for fiscal union. Bond yields tell the true story and reflect what investors are thinking. The 10-year bond yields for France, Italy and Spain last traded at 3.08%, 6.61% and 5.66% respectively, still lower than recent highs but above comfort levels.

The EUR/USD continues to find resistance at the 1.35 level, last trading at around 1.3462.

In regional economic news, Goldman Sachs has joined HSBC in forecasting rate cuts in China for 2012, contrary to market consensus which assumes inflation is too high to accommodate cuts.

The forecast come as Australian banks see their credit ratings downgraded by a notch by S&P but all big four banks remain AA rated. The move is unlikely to see any panic among Australian investors but there will be questions by those offshore as to the sustainability of Australian bank valuations, now among the highest in the world.

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