Asian Market Update

Failed Senate Vote on US Automaker Bailout Sinks Global Equities, JPY Hits 13-yr High vs USD, GBP

The $14 billion lifeline to keep the struggling US autosector afloat in Q1 revived just a day ago in the US house has flatlined in the late evening US senate vote. UAW workers have refused to compromise with Republican leaders' demand to accept wage cuts toward pay levels comparable to employees of Japanese carmakers. In turn, in an ominous sign just hours before the Senate vote, GM management confirmed that the company has secured counsel for all scenarios, including bankruptcy. Congressional Democrats working to pass the measure in recent sessions expressed disappointment over the failed vote, urging the Bush administration and Treasury Secretary Paulson to pledge funds from the TARP program in relief for the auto sector. House Speaker Pelosi referred to TARP or Fed loan as the only viable option for the industry, while Senate Majority Leader Reid asked for the bridge funds to be extended "as early as tomorrow." In the past, Secretary Paulson has stated that TARP was not the appropriate solution for auto rescue, underscoring the urgency for GM - the most desperate of the big 3 - and its alleged inability to meet financial obligations through the end of the year.

Automakers all across Asia dropped sharply on the news of the failed Senate vote. In Tokyo, shares of Honda were down over 12%, Toyota slipped by 9.5%, Nissan sold off by 10%, and Mazda fell 9%. In Korea, Hyundai, Kia, and Daewoo were off by 7%, 5%, and 7% respectively, while in China, Donfang and Brilliance were down 9% and 11%. GM and Ford were projected to fall by as much as 10% in the wake of the Senate decision.

Elsewhere, economic stimulus plans for Australia and Japan did little to offset soured investor sentiment. Aussie Prime Minister Rudd looked to allocate A$4.7B to national infrastructure building program targeted to boost transportation and education sectors. The program was seen providing a 0.5% GDP boost in 2009-10 and creating as many as 32K new jobs. In Japan, PM Aso was preparing to announce details of additional measures centered on dealing with the deterioration in job market and the tight credit conditions, bringing the total of the stimulus plan to ¥40T. In turn, Japan's Finance Minister Nakagawa urged lawmakers for a quick action to finalize the stimulus, with the passage of the measures having been delayed by discord seen in Japan's legislative Diet. Aussie S&P/ASX closed down 2.4%, while the Nikkei traded as low as 7% off before regaining some ground to -5.5%.

Officials in Korea and China have both downgraded forecasts for growth in 2009. Bank of Korea member saw 2009 GDP at only 2% - the lowest in 11 years - while China's Vice Min Liu said the economy was likely to slow further in Q1 2009. China saw a 9% GDP growth in Q3 and expects additional deterioration in Q4. On the plus side, Liu noted that conditions were different from the 1997 crisis and that the economy will recover following Q1. Korea's Kospi saw a 4.4% slide, while Hang Seng was down by nearly 7% toward the end of the session.

In currencies, extreme risk-aversion on the heels of the failed automaker Senate vote boosted Japanese Yen across the board, helping USD/JPY and GBP/JPY to multi-year highs. USD/JPY traded below 88.70, GBP/JPY fell to 133.00, and EUR/JPY found some support just above 118.00. EUR/USD oscillated violently in 1.33-1.34 range before finally succumbing to risk aversion in favor of the dollar. GBP/USD had also initially found repeated buying interest at 1.50 before selling down to 1.4950, and USD/CHF hit fresh late-session highs above 1.1850. Commodity related currencies were sold off particularly heavily, with AUD and CAD losing two big figures to USD-favored flows. On US fixed income side, 2-yr notes yielded just below 0.7%, while the 10-year rate was at multi-decade low just 2.5%.

Commodities are sharply lower across the board, after the US Senate's failure to pass the legislation related to the bailout of the automakers. Crude oil is lower by 2.3% after gaining sharply in NY trading. Crude is tracking the weakness in Asian equities and the commodities currencies. Spot Gold is also declining, after gaining by more than $17 in NY trading. Of note, gold prices have traded above platinum for the first time since 1996. The collapse of the auto bailout bill is having a negative impact on platinum as the metal is used in auto catalytic converters

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