Asian Market Update: Better than Expected Machinery Orders in Japan Help Related Nikkei Names, While Index Pares Early Gains and Nomura Plummets on Share Offering; Rio Tinto Rallies as Asset Firesale Continues; Commodity Currencies Reverse Gains

- Equities in Japan repeated prior session's trading pattern, rallying over 2% at the open before selling down all the way to unchanged levels coming out of midday break. In the final hour, the Nikkei extended its losses to close down by over 1%. Initial bullishness was attributed to a much better than expected December Machine Orders figure, coming in at a 3-month high of -1.7% v -8.6% estimate. Machinery makers on the Nikkei rallied across the board on the data, with notables Hitachi Construction and Komatsu gaining about 4%, while SMC Corp picked up nearly 5% on the news despite cutting its FY net income estimates by 37%. Much like with Toyota downgrade on Friday however, Moody's ratings hatchet job - this time, on financials - soured bullish sentiment in latter session. Credit agency lowered ratings on several banks, and also placed Daiwa Securities on rating watch for a possible cut, sending its shares down 4.5%. Shizuoka Bank was down 6%, additionally guiding FY net income down to ¥15.1B vs prior forecast of ¥25.2B. Meanwhile, Japan's largest brokerage Nomura highlighted the weakness in financials, shedding nearly 6% after reports of a $3.3B common share offering - the first equity capital raise in 20 years. Japan's electronics names were also initially stronger on renewed currency weakness that tends to favor exporters. Canon and Sony were up over 2%, but traded around unchanged levels with the broader index late in the session. Sharp was a notable exception, as shares remained upbeat with a 6% rally after being upgraded to Buy at Nomura. Also beneficial was the announcement from Pioneer that it would close its flat-screen TV division - Sharp's primary business. Given a light economic calendar this week, next Monday's GDP data remains critical for Japan, prompting government spokesman Kawamura to assess the need for any additional stimulative steps to follow its release.

- Shares traded in Sydney tracked regional pullback mid-session, but managed to close up 1.1% after rising as much as 1.7%. Rio Tinto was traded heavily to the upside for a 4.4% gain, largely on further firesale of company assets to shore up capital for its impending debt repayment demands.
Amcor was rumored to be interested in buying Rio's aluminum-packaging unit for $4B, Mitsui was said to consider some of its assets amounting to $5B, and Chinalco was reportedly preparing for a formal strategic partnership announcement as early as this week. Rio declined to comment on specifics of these rumors, only stating that all options on debt reduction remained feasible. On a related note, BHP was also stronger by nearly 4%, reiterating that while Rio's assets would fit very well into BHP's portfolio, a cash bid for the company was out of the question on regulatory grounds. Historically, the market has been very supportive of BHP's reluctance to acquire its debt-laden competitor. Elsewhere in Sydney, Coca Cola Amital was sharply lower, dropping 11% after Lion Nathan withdrew its bid for the company and Kirin Holdings denied having any acquisition interest. Hutchison Australia also announced that it would merge its Australian unit with Vodafone into an even-split joint venture to be named VHA Ltd.

- In Seoul, the Kospi was up over 1% in the opening hour, but traded down to a negative 0.6% close in line with other regional bourses. Automaker Kia was particularly weak after failing to generate any buying interest for its 5.76M preferred shared intended to be sold to banks. Steelmaker Posco was lower after cutting steel prices by 14% on declining input costs and slumping demand, while Hyundai Heavy traded to the upside late in the session after receiving a KRW455B contract from Singapore.
In macro-oriented developments, South Korea's January PPI registered a one-year low at 4.7%, and the country's 2009 GDP estimate was cut to -4.5% from -2.5% at MacQuarie. North Korea continued its recent saber-rattling, speaking out against confirmation of South Korea's unification minister-designate Hyun In-Taek while escalating the threat of further missile-testing in the region.

- In foreign exchange, European majors pared early gains as risk aversion resurfaced in global equity markets. EUR/USD found selling interest after rising to Friday's resistance just below 1.30, USD/CHF bottomed below 1.16 before rising on broad USD strength, and GBP/USD peaked above 1.4850 before falling to 1.47. Commodity currencies were also uniformly punished, reversing broad-based gains seen on Friday. USD/CAD rose just over one big figure after bottoming below 1.2150, AUD/USD collapsed over 150pips from Friday's peak at 0.68, and NZD/USD sold down to 0.5240's lows. Japanese Yen rediscovered buying interest after being pushed to 1-month low above 92, with USD/JPY falling below 91.00 handle. EUR/JPY and GBP/JPY declines were predictably augmented by weakness in European currencies, falling 200 and 300 pips below 117.50 and 134.00 respectively. USD/SGD bounced off prior support just above 1.49 figure, while USD/KRW was bid higher from last week's support at 1,360.

- Crude oil is trading above $40/bbl at the time of writing and has swung between gains and losses during Asian trading. On Friday's US session oil prices dipped below $40/bbl, but managed to close above this level. Some are attributing Friday's move below $40 to the fact that the US Oil Fund LP ETF rolled all of its positions in benchmark crude into the subsequent month. In terms of oil supplies, an unconfirmed report noted that Saudi Arabia planned to supply crude oil at about 7-8% below contracted volumes for 1 of its Asian clients in March, which would be in line with Feb levels.
However, a conflicting report disclosed that Saudi Arabia may cut March supplies to an Asian buyer to 10% below contract volumes. With respect to US gasoline demand, the Lundberg survey disclosed that on Feb 6, the average price for a gallon of regular gasoline rose by about 6 cents to $1.92/gallon in the last 2 weeks, which was the third consecutive rise. In other oil related news, Nigerian oil industry managers may seek to soon begin a strike in protest of their working conditions. Spot Gold is lower by more than 0.40%, but trading firmly above $900/oz. In terms of gold demand, as the SPDR Gold Trust ETF continues to increase its holdings of bullion to record levels, the Association of Mutual Funds in India disclosed that in Jan, assets in Indian gold ETFs rose by 4.5% m/m to INR7.7B. The rise in Indian demand for gold ETFs comes despite the fact that India's Jan gold imports declined on a y/y basis.