Asian Market Update: US Stimulus Bill Narrowly Clears Procedural Hurdle as Pres Obama Urges Swifter Action; Russia Rumored to Request Loan Amendment for Payment Delay; USD Gains Across the Board as Risk Averse Flows Resurface

- Asian equity markets opened sharply stronger across the board, cheering progress on US stimulus bill, but squandered those gains for 3rd consecutive session as ominous rumors from Russia's banks spooked bullish sentiment. With three Republicans crossing the aisle, US Senate voted 61-36 to limit debate on $827B stimulus bill, moving it closer to the final vote on Tuesday. Subsequently, President Obama met the press, reiterating the need for a stimulative recovery package to be enacted as soon as possible and rejecting the opposition's call for greater emphasis on tax cuts, stating that govt spending was critical to "jolting" economy back to life. Moreover, Obama forecasted 4M jobs to be created as a result of the proposed stimulus, while his economic team reportedly dropped the plan to create a "bad bank" fund, signalling that private capital will be used to deal with toxic assets.

- Resurfacing risk aversion was then attributed to early session speculation in the Japanese Press that Russia may be pressured by the struggling local banks to request a delay in repayment of private sector debt amounting to about $400B. The Russian Association of Regional Banks was said to have submitted a plan to the government for representation in negotiation with foreign lenders and had also contacted HSBC and Deutsche Bank. Neither bank commented on the speculation, while Mizuho Financial later reported that it has not received any request from Russia regarding delay on debt repayment. Subsequently in late Asian hours, Russia's Head of Regional Association Aksakov responded that the debt restructuring speculation is only floated as an idea and has not been formally submitted to the government.

- Statements from several prominent monetary policy makers from the US Fed, ECB, and PBOC rippled through the markets in the Asian hours, addressing economic conditions and policy outlook for their respective bodies. In the US, Fisher urged political independence for the Fed to meet its mandate of price stability and sustainable growth, while also speaking out in opposition to any protectionist trade measures. Additionally, he noted that unemployment could tick up to 9% and 2009 GDP contraction could reach 2.5%. A pair of ECB speakers gave a mixed review regarding the next policy step. Historically more hawkish Mersh echoed Trichet's opposition to zero interest rates, while Weber said that given the sparse indicators of financial stabilization, at this juncture central banks should be willing to cut aggressively. PBOC's Zhou sounded off rather hawkishly, opposing additional policy easing and reiterating that 2009 GDP growth estimate of 8% is still achievable.
Separately, China reported mixed inflation figures for January in today's session, with CPI coming in 2 ticks above estimates at 1.0% and PPI falling off moderately to -3.3% from prior -1.1%.

- In regional Asian markets, Tokyo's Nikkei opened the day up 2% but sold off into negative territory coming out of midday break, trading down 0.2% in the final hour. Aozora Bank was weak after media speculation that the company may post a FY loss of ¥200B - a rumor substantiated by resignation of company CEO Sacasa. Nissan shrugged poor afterhours earnings in the prior session, with moderate buying interest supported by an upgrade to Neutral at Nomura. Ibiden was also bid higher after Goldman Sachs added its shares to "conviction buy" list. Separately, according to credit default swaps market, corporate bond risk in Japan was at record high levels. Among Japan's speakers, Economy Minister Yosano remained glum, forecasting next week's GDP number to confirm severity of Japan's economic conditions. Finance Minister Nakagawa also went after the recent hints of protectionism in the US, signalling intentions to discuss "Buy American" clause at this weekend's G7 meeting - language from which the US administration has notably backed away in earlier sessions.

- S&P/ASX was also strong at the onset with a +0.4% gain, but closed the day down 0.6% after bottoming at -1.4%. Cochlear was among the leaders, picking up 4% after beating expectations on H1 earnings. In the losing column, AWB Ltd fell nearly 20% after announcing that its H1 net will fall 45-55% y/y. In miners, BHP tracked the bearish sentiment with a slight decline despite being added to Goldman "conviction buy" list, and Rio Tinto pared the recent gains as Chinalco official, confirming talks with the company on asset sale, said negotiations remained "intense".

- Korea's Kospi opened up about 1.5% at session highs but traded down in line with other bourses, finishing the day down 0.3%. New Finance Minister Yoon delivered the expected downgrade of government 2009 GDP estimate after BOK's earlier revision, forecasting a 2% contraction and a potential 200K fiscal year job loss. Yoon also noted that the economy was "contracting more quickly than expected as external conditions keep deteriorating", but the govt was prepared to inject public funds into banks if conditions demanded it. In Korea's tech specific developments, iSuppli commented on DRAM revenue for 2009, estimating a 15% decline.

- In foreign exchange, the Euro was heavily sold on feared exposure of European banks to the possibility of default implied by Russian banks' loan payment delay request. EUR/USD fell two big figures to a 1.2810 low before recovering slightly after Russia's Head of Regional Association denied Japanese media speculation. USD strength was also felt in other European majors and commodity currencies. GBP/USD briefly fell below 1.48 but recovered much of the weakness, maintaining week-long uptrend. USD/CHF reached February high at 1.1780, and USD/CAD mainly traded rangebound at 1.22-1.2250. USD strength was also seen against the Aussie as AUD/USD fell nearly two big figures off session peak at 0.6850, while NZD/USD bottomed earlier in the session, trading down to 0.53. Japanese Yen was lifted as equities sold off, falling to 91.00 in USD/JPY and below 117 and 134.60 in EUR/JPY and GBP/JPY. Currencies of emerging Asian economies were also sharply weaker on risk aversion, with USD/SGD testing 1.50 and USD/KRW rising to two-month highs above 1,400.

- Spot Gold has traded higher for most of the Asian session and temporarily rose above $900/oz following an unconfirmed press report noting that Russian banks and businesses could ask their foreign banks to reschedule loans worth $400B. The article related to Russia has since been denied and gold has moved back below $900/oz. During the NY session, gold closed lower by more than $21 and below $900/oz. One market analyst noted that gold prices are consolidating around the $900 level. In terms of gold demand, the holdings of the SPDR Gold Trust ETF rose to another record of 881.9 tons as of Feb 9 vs. 867.2 on Feb 5. Crude oil is higher in Asia, after closing the New York session below $40/bbl. In terms of OPEC news, the Algerian oil minister noted that he expects oil prices to rise to $60/bbl by the end of 2009. The official added that an OPEC output cut is likely if oil falls “fast” below $40/bbl. Also earlier today, OPEC's Secretary General said that the cartel had reached an 80% compliance rate with its previously announced output reductions and no new production cuts will be implemented until there is full compliance with the prior cuts. The OPEC Secretary General added that the cartel is ready to cut production at its March meeting.