Asian Market Update: Citi Reaches Deal; Japan Nikkei Shrugs Yen Gains with Strong Jobs, Retail Trade Data as Spending, Autos and Production Figures Remain Weak; Kospi Recovers After Dodging Fresh Credit Rumors; Australia's Private Credit Recovers as Markets Eye RBA

- After much speculation this week, some of the Citigroup uncertainty was lifted in late US evening hours amid reports of US government looking to convert a $25B stake of its preferred equity into common stock, providing private sector can be persuaded to follow suit. In a crafty compromise to the much debated moral hazard of excessive government bailout, the Treasury is said to look for a dollar-to-dollar match with the private sector up to the said amount. Price of the conversion appears to be the one sticking point at this time however, with Citigroup rumored to have asked for a $5/share tag, a 75% premium to where C settled at the end of the day.

- In Tokyo, the Nikkei has recovered from its late session malaise seen yesterday, and this time it did so on the strength of its fundamentals rather than depreciation of its currency. Despite a modest short-covering in the Yen, the Nikkei reversed its early weakness to trade higher by 1.5% going into the final hour of trading. Amid a barrage of economic data, Japan's January 4.1% jobless rate stood out next to its 4.6% estimate, reversing consecutive months of rising unemployment. Retail sales also took the markets by surprise, coming in at firmer levels of -2.4 y/y and +0.6% m/m over consensus -3.0% and -0.5%. National CPI levels remained flat, while industrial production came in line with estimates, and were also taken in stride by Tokyo markets despite registering a record m/m drop. In notable companies, prior session's big decliners Advantest and Daiichi Sankyo were further beaten down by 4% on a pair of downgrades from HSBC and Mizuho, while Elpida led the gainers early with a 7% bounce after press rumors of the company would confirm an alliance with Taiwan's ProMos Technologies, Rexchip and Powerchip Semi. In Japan's auto sector, a 41% contraction in January production on a y/y basis weighed on carmakers as Honda fell 2%, while Nissan pared last session's rally to finish around unchanged levels.

- Sydney's S&P/ASX ended the week on a subdued note, trading within a 1% band relative to prior close before finishing down 0.5%. For the third consecutive session, Aussie fundamentals topped estimates as Jan Private Sector Credit on a m/m basis came in at 0.6% v 0.3%e. Strong economic data may prove to be increasingly decisive ahead of March 2nd RBA decision, where estimates range wildly from a no cut to a 75bp easing. Treasurer Swan retained an upbeat stance, noting evidence of stimulus impact and underlying strength in Aussie economy in spite of the deteriorating global conditions. Mining shares were mainly higher, as Fortescue reversed prior day's drop with 3% rally, Rio Tinto picked up 2%, while Oz Minerals led the charge with a 10% gain, updating its sales talks status with banks intended to avert creditor takeover to an "advanced" stage. Aussie consumer sector giant Woolworths's earnings disappointed on the bottom line, sending shares down by 7%.

- Korea's Kospi was the strongest regional performer going into the final hour, however rumors of intervention to support sinking KRW and a particularly poor GDP figure from India punctured the 2% rally to a sub-1% close. Early Kospi vigor was attributed to an upgrade for Korea's equities at JP Morgan. Subsequently, the Kospi weakened on rumors of more funding sought by Korea government from the EU via a currency swap, however Finance Minister's rejection of that reported boosted the index to its best level. In notable Kospi names, Posco replaced its CEO and rejected rumors of bidding for Daewoo Shipbuilding amid prospects of a 30% production cuts. Elsewhere, creditors of Hynix were reportedly taking initial due diligence steps in order to sell up to 36% of their company stake.

- In currencies, European majors traded in narrow ranges, with EUR/USD bouncing lower from 1.2750, USD/CHF supported above 1.1620, and GBP/USD unable to maintain above 1.43. Japanese Yen was firmer on mixed economic data as USD/JPY fell about 40 pips from intra-session 98.70 peak. In commodity FX, AUD/USD bounced from its week-long uptrend below 0.6450, NZD/USD found buying interest at intra-session 0.5050 support, and USD/CAD leveling off from its early-day rally below 1.2580.

- Spot Gold is currently lower as the metal has traded lower so far everyday this week. During the US session, gold prices closed down by more than $23.00 despite the decline in US equities, but managed to close above $930, which has been viewed at a pivot point. In terms of gold demand, the SPDR Gold Trust ETF increased its holdings to a new record of 1,029 tons vs. 1,028 prior. Before today's increase, SPDR Gold Trust's holdings of gold had remained steady during the week. Overall gold is on track for its first drop in 3 weeks. Crude oil is lower in Asia after gaining more than 6% in NY trading. The Asian pull back in oil prices comes as Japan's January preliminary industrial production figures showed the largest m/m drop on record. Japan is the world's third largest oil importer. In terms of oil supply related news, Tanker Tracker reported that OPEC may cut its oil shipments by 400K bpd in the 4 weeks to March 14. In the past, Tanker Tracker noted that OPEC's exports in the 4-weeks to Feb 28 declined by 820K bpd. In other oil news, the WSJ reported that the US Commodity Futures Trading Commission (CFTC) is probing the US Oil Fund ETF over price moves that coincided with its trades in and out of crude-oil contracts earlier this month. The US Oil Fund's holdings of oil now account for about 20% of all April crude futures on the NYMEX and about 30% of the contracts on the ICE Futures Europe. The CFTC probe follows US Oil Fund's decision to change its rollover strategy by renewing its expiring crude futures positions over the course of 4 days each month instead of rolling its entire oil futures position in a single day. US Oil Fund changed its rollover strategy amid criticism that its size has skewed oil prices.