Asian Market Update

Additional Stimulus Prospects in Japan, JPY Selloff Spark Early Buying Spree; Aussie Boosted by RBA Battellino's Clouding of Next Week's Expected Cut; Asia Development Bank Joins the Ranks of China Doubters; Dollar Falls on Reemerged Risk Appetite

Asian bourses have shaken off the steep equity selling seen in the prior session and over the US trading hours, rallying on a batch of mixed fundamentals and uncertainty over the sustainability of March rally against a more protracted market bottom. Japan's Finance Minister Yosano generated the initial upward push, expressing his support for the rumored lawmaker stock purchase program to incluse ETFs and also expressing renewed administration commitment to an augmented stimulus program. Subsequently, LDP's officials have confirmed that Prime Minister Aso issued an order for lawmakers to compile an additional stimulus program by mid-April, with freshly-minted deficit-covering bonds to finance the plan. Moreover, Nikkei bullishness was underscored by the weakness in the Yen, where final fiscal-year session potentially marks the end of detrimental repatriation flows, lifting export-oriented names. Tokyo's primary index was up as much as 2% at its best levels before selling off as otherwise questionable economic data that saw unemployment rate rise to its highest level in 3 years at 4.4% and labor cash earnings slump -2.7% - the biggest drop in 5 years - weighed on sentiment.

In Sydney, RBA's Deputy Governor Battellino clouded the outlook for next week's policy decision with a mixed message. Citing continued global economic turmoil, he issued the most explicit downgrade for 2009 growth prospects from the prior +0.5% estimate, suggesting that "GDP is likely to fall in 2009". However, he echoed some of the recent regional sentiment that China may have hit bottom and that Australia's housing demand has been notably boosted by the effectiveness of lower interest rates. As such, he saw the "monetary policy transmission process" as "effective" and suggested that easier policy would take place "if circumstances require". Despite non-confirmation of looser credit seen in the worse than expected private sector credit numbers released later in the session, traders perceived Battellino's message as more hawkish, downgrading the prospects for any rate cut via the April cash rate futures implied rates while boosting AUD across the board. In otherwise notable Aussie share developments, MacQuarie Communications and MacQuarie group traded much higher after confirming acquisition interest by Canadian pension fund and Qantas Air rallied 2% after February's numbers dipped by smaller than feared margins. Select Aussie miners also benefited from acquisition attention from China: Treasurer Swan confirmed that he would not block Hunan Valin's expanded interest in Fortescue, and Oz Minerals remained halted for another day after confirming an alternate proposal from Chinas's MinMetals. The broader S&P/ASX traded higher by over 1% before selling down to a slight session decline.

Elsewhere, Asia Development Bank (ADB) entered the debate concerning speculation on China 2009 GDP prospects. Citing greater impact of global economic slump and calling for more focus on domestic consumption, ADB cut its 2009 China GDP estimate from 8.2% to 7%, forecasting a bottom later in the year and an 8% growth in 2010. ADB's inflation outlook was even more grim, with a cut to 0.8% from 5.5%. India's economy was also expected to mirror China trends with a 5% 2009 performance before a 2010 recovery to 6.5% GDP. Over in Korea, Industrial Production data surprised the markets and helped the Kospi retain much of its earlier strength, trading up about 1.5% late in the day. February output was seen at +6.8% v +1.1% expected on a monthly basis and a contraction of -10.3% v -16.6% on a yearly basis. Korea's steelmaker Posco released FY08 operating profit slightly below estimates of KRW6.66T at KRW6.54T, trading higher on the report.

In currencies, hints of risk appetite translated into general USD and JPY weakness against the majors, with the former falling particularly sharply to the RBA recalibration driven AUD and the latter being sold on seasonal considerations. EUR/USD tested 1.3250, GBP/USD rallied above 1.43, and AUD/USD was up one big figure off its lows at 0.6890. Commodity-driven CAD and NZD were also moderately higher against the greenback, reaching 1.2550 and 0.5890 respectively. Japanese Yen fell over 100pip in Asian hours against USD and 200pips against the EUR to trade above 98.00 and 130.50 respectively.

Crude oil prices are higher, but at the time of writing prices are below $50/bbl. In Asia, oil prices are tracking, the gains in the Nikkei 225 and S&P 500 Futures. In OPEC-related news, the cartel's president said during the US session that all members are complying with OPEC's production cuts, and this compares with the 79% compliance rate disclosed on 3/28. In other oil related news, an unconfirmed press report disclosed that India's, 4th largest oil importer, oil refiners may increase their prices for jet fuel by as much as 15% on the recent gains in spot prices. Spot Gold is higher at the time of writing, and is tracking the gains in oil prices and the weakness in the dollar. In gold fundamental forecasts, some analysts expect that if global data releases continue to raise deflation fears this could weigh on gold prices. Additional factors that could impact gold prices include the trading in the USD, primarily against the euro, and investment flows.

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