Asian Market Update: Asian Equity Bounce Cut Short After Obama Address; Nikkei Cheers 3-month High in USD/JPY Despite Record January Export Drop and Automaker Production Reports; Korea Allocates KRW20T to Capitalizing Small Banks

- Once again, financial markets perceived this evening's grandiose Congressional address from US President Obama as long on promise but short on detail, swiftly reversing Wall St. inspired early rally in Asia while also sending front-month S&Ps to session lows. Nikkei225 pared the 2.3% bounce before being rescued by weakness in Japanese Yen, S&P/ASX settled down 0.1% after trading as high as +1.5%, while Korea's Kospi entered the final hour up only 0.5% after a much stronger open of nearly +3%. Obama's speech proved to be disappointing to investors looking for clarity and specifics on the government rescue initiatives within the housing and banking sectors, as it brushed in broad strokes of commitment to shoring up banks despite the industry requiring additional funds and housing measures resulting in lower borrowing rates. Perhaps the most concrete development was the commitment to a $2T budget savings over the next decade as a result of bipartisan sacrifice of some "worthy priorities". Cuts in agriculture subsidy and fiscal responsibility in Iraq were cited, while rumors also surfaced that the administration was close to finalizing its Iraq deployment plan.

- Tokyo markets appeared to be the most insulated to the intraday reversal, as 3-month low in Japanese Yen against the greenback helped the export heavy Nikkei recover from Obama inspired malaise. Shares in Japan shrugged the lagging trade balance that saw exports decline by a record rate of 45.7% y/y and imports contract 31.7%, looking ahead to more favorable performance on currency weakness. Japan's auto sector also grabbed the spotlight, printing large production drops across the industry. Top three automakers - Toyota, Honda, and Nissan - saw their global output fall 43%, 33%, and 54%, while the smaller Mazda and Mitsubishi declined by even wider amounts.
Additionally, Nissan's credit rating was cut two notches to Baa2 from A3 in light of "significantly impaired state for profitability and cash flow due to severe nation of market conditions in auto industry". In notable Nikkei underperformers, Nippon Oil fell 1.8% after expanding the crude refining outlook in February by 4% to -16% and forecasting -22% slack for March. Shipper Nippon Yusen also reportedly lowered its automobile carrier and container ship capacities by 20-30%, losing about 1% despite the broader index strength.

- Sydney cheered a strong set of economic data, further jeopardizing the prospects of a magnified RBA easing in sessions to come. Closely watched by central bank wage cost index figures came in above expectations on q/q and y/y basis, beating respective Q4 estimates of 0.9% and 3.8% with 1.2% and 4.3% figures. Q4 Construction index also topped estimates of a 1.5% contraction with an increase of 1.7%. Treasurer Swan remained upbeat, citing strong evidence of impact of fiscal stimulus while also downplaying the risk to Aussie sovereign rating. In share-specific news, Woodside Petroleum again traded to the upside, confirming presence of gas-water contact in Martell-1 well as reported yesterday. In mining shares, Fortescue remained halted on plans of additional capital raising, and Oz Minerals fell 17% after shedding as much as 30% on concerns that the company may fail to refinance A$1.2B of debt, leading to takeover by China Minmetals.
Company officials reported that talks with banks were proceeding in a positive manner, but had not yet concluded.

- Elsewhere in Asia, South Korea Regulator pledged a KRW20T fund to recapitalize local banks with BOK to contributing half of that amount. Korean Finance Minister Yoon reiterated that the rumor of a "March crisis" is without merit as the government maintains an active role in managing financial market stabilization. In Hong Kong, Finance Secretary Tsang reported Q4 GDP falling 2.5% v 1.5% expected, guiding overall 2009 economy to contract 2 to 3%. Hong Kong CPI was also said to be expected lower from 4.3% in 2008 to 1.6% in 2009.

- In currencies, Japanese Yen remained heavily sold, reaching late November lows against USD above 97.00. EUR/JPY and GBP/JPY also moved sharply higher as risk appetite punished USD against the other majors, reaching 125 and 141 respectively. European currencies were slightly firmer, as EUR briefly traded above 1.2860 and GBP broke 1.4550. In commodity FX, AUD was repelled by week-long high below 0.6550, NZD bounce was contained by 0.5160, while USD/CAD ranged within the 1.24-1.25 band.

- Crude oil is lower in Asian trading, after rising by more than 3% in NY trading, as US equities closed higher. In terms of oil demand related news, Japan's Jan oil imports declined for the 3rd consecutive month, while local refiner Nippon Oil announced that it would lower its Feb and March crude refining volumes due to declining demand. In China, a press report noted that refiner Sinopec asked 8 of its refineries to prepare to export more refined oil products in March, due to its concern about domestic demand. Additionally, another press report disclosed that PetroChina might seek to delay the start of two of its refineries in a move that would impact 400K bpd of production. Looking ahead, the US Dept of Energy's weekly inventories report will be released later today for the prior week. According to 1 survey, oil inventories are expected to have risen by 1.25M barrels, after supplies declined by 138K barrels in the week ended Feb 13, which was the first decline for 2009.
The earlier released, API survey showed that last week crude inventories rose by 341K vs. the expected 1M barrel rise and the prior reading of a rise of 1.57M barrels. Spot Gold is lower after declining during the US session as the S&P 500 and US banks rallied. Additionally, some traders note that the earlier comments from the Fed Chairman Bernanke reassured markets, which triggered a reduction in the demand for safe haven assets. In terms of gold demand, the SPDR Gold ETF's holdings have remained at record levels and have so far not risen during this week. Additionally, data from UBS showed that the total gold holdings of 8 ETFs slightly declined on Feb 23. from levels on Feb 20, which was the first drop in Feb. In terms of gold's technicals, one analyst noted that the longer term view for the metal is bullish, while $930 holds (pivot point).