Asian Market Update: Japanese Shippers Recover on Sharp Bounce in Baltic Dry Bulk, Former BOJ Rate Cut Opponent Sees Grim Prospects; Aussie Stimulus Delayed as Miners Rally; European FX Majors Consolidate Before Rate Decisions, while Mexico Confirms Intervention

- Ambivalence over attractive valuation against the ongoing flood of poor earnings results in US and Asia has translated into more volatility in regional equity indices. The Nikkei erased all of its early 1.7% decline, briefly entering into positive territory on the other side of Tokyo's midday break before selling down yet again by over 1% ahead of close. Likewise, S&P/ASX initially traded up 0.5%, sold down by 1% from its peak, but finished closer to unchanged levels. South Korea's Kospi, driven by strength in chip sector, was once again relatively stronger, entering the final hour of the trading session up 0.6%.

- Shipping names led the advancers trading in Tokyo as the markets took notice of the 15% spike in Baltic Dry Bulk index - the largest gain since 1985. Nippon Yusen, Mitsui OSK, and Kawasaki Kisen rallied 7%, 8%, and 9.6% respectively an hour ahead of the close. In other large gainers, Sumitomo Metal was up over 10% on strength in scrap iron/steel prices, while Japan's memory sector leader Elpida was also up in double digits after reports of Taiwan govt interest in 10% company stake.
Among some of the names reporting early in the session, videogame maker Konami fell sharply by over 4.5% on the heels of weaker than expected FY guidance. Mitsubishi Heavy Industries also reported, missing broadly on the FY forecast for the bottom line but coming close on top, sending its shares up 2%. BOJ's Mizuno, a former opponent to additional easing measures, said the economy was in a downward spiral and facing a hard landing. He noted the possibility of a decline in CPI, ongoing high downside risks and likelihood of additional volatility. BOJ Governor Shirakawa echoed that sentiment, stating that the severity of the economic slowdown in Japan is ongoing.

- In Sydney, mining giants BHP and Rio Tinto led the rally with 6% and 9% gains, while MacQuarie Bank shrugged poor guidance with a modest bounce of its own. Rio Tinto had completed the sale of its Potash and Corumba iron assets, yielding a A$1.6B sum toward its debt obligations as expected.
The company also announced restored transport on its iron ore rail lines after derailment accident in the prior week. MacQuarie guided FY09 profit A$900M v A$1.08Be and noted ongoing challenging conditions, also disclosing writedowns of A$900M. In other Aussie financials, Suncorp was halted ahead of announcing a A$800M capital raise - A$390M through share placement, A$410M in 1 for 5 rights issue. The company also guided H1 A$250-270M. Lend Lease Corp led the decliners, dropping 17% to trade at A$5.62 after a A$302.5M share placement at A$6.05/share. Australian opposition party stepped up its resistance to additional A$42B economic stimulus package, calling for an upper house inquiry in a move that will invariably delay its approval. Australia's Treasurer Swan remained confident that the measure will pass, calling for a swift resolution to the packaged intended to boost the economy and jobs.

- Strong after-earnings gains in Hynix electronics supported the rally in the Kospi, with company shares picking up 7% on the session despite the dubious numbers. Hynix reported a wider Q4 net loss of KRW1.3T v loss KRW1.0Te and slightly weaker sales at KRW1.5T v KRW1.6Te. In its outlook, the company said 2009 will remain a challenging year for the economy, while also stating that DRAM supply would grow 20-30% in 2009 due to CAPEX cut. Additionally, Hynix anticipated 2009 global PC shipment growth to be flat. Overall guidance for Korea's economy elsewhere was also bleak, with Bank of Korea reportedly cutting its 2009 growth forecast to 0.3% from 2.0% and KDI agency suggesting that the country was entering a recessionary phase.

- In currencies, European majors consolidated ahead of the upcoming ECB and BOE decisions, with estimates pointing to a hold for the former and a 50bp cut for the latter. EUR/USD oscillated in 1.28-2860, GBP/USD remained supported above 1.44, and USD/CHF upside was contained at 1.1620. In commodity FX, AUD/USD was slightly stronger, extending its bounce from 0.64, while NZD/USD was a touch softer below 0.51. Mexican Central Bank made the headlines with confirmed intervention to protect domestic currency by selling USD, diverting speculators from Russia toward the struggling Mexican peso similarly weakened by slumping energy commodity revenues. Japanese Yen volatility was also once again contained in Asian hours - USD/JPY ranged between 89.20-50, EUR/JPY saw consistent selling interest on rallies toward 115, and GBP/JPY was sold above 129.30.

- Crude oil is higher in Asia and holding above $40/bbl. During the NY session, oil prices declined by more than 1% as the Dow and S&P 500 both closed lower. In terms of oil supplies, the US Dept of Energy disclosed that during the prior week, crude inventories were higher than expected, while gasoline and distillates stockpiles were lower than expected (DOE CRUDE: +7.17M V +3ME; GASOLINE: +362K V +1ME; DISTILLATES: -1.36M V -1.3ME). In other oil supplies related news, Libya's Oil Minister noted that he did not expect OPEC to lower production in March. The comments out of Libya come as OPEC's Algerian Oil Min said that he saw a 50% chance of a cut at the March meeting. At the time of writing gold prices are lower. During the NY session gold gained by more than $9 and closed above $900/oz. In terms of gold demand, the SPDR Gold ETF increased its holdings of bullion by 0.7% to a new record level of 859.5 metric tons. With respect to analysts calls, both Goldman and UBS increased their gold price forecasts to $1,000/oz from $700. Looking ahead, possible event risks for gold include the upcoming European central bank meetings and the US employment report.