Asian Market Update: Broad Selloff in Asia Tracks US Losses Selloff Amid Mixed Economic Data; Discord at EU Summit Weighs on Euro; AUD Retreats Ahead of RBA; Korean Won Plummets at the Onset of Dreaded March; Gold Recovers Above $950

- Asian equity markets were pummeled in the first session of the new month, tracking the bearishness accentuated by Friday's GDP-inspired US selloff. Major indices sank to session lows in late trading, with Nikkei stumbling down by nearly 4%, S&P/ASX closing off by 2.7%, and Kospi plummeting nearly 5% at its worst level amid heavy Korean Won selling. Financials led the decliners across the board in Tokyo, Australia, and Korea. Nikkei's Sumitomo Mitsui and Mitsubishi UFJ shed over 6%, while Kospi's Woori Finance dropped over 5.5%. The Korean Won's shellacking added fuel to the Kospi fire, as Seoul traders turned the calendar page to the dreaded March, when banking loan repatriation to Japan elevates credit risk while raising speculation of a "March crisis". Up until now, Korean officials have vocally opposed that possibility, even as KRW decline prompted another rumored BOK intervention. In turn, Australia's banking was also hit internally by a Moody's outlook downgrade that cited "the potential for the deepening global economic downturn to have a protracted impact on Australia's banks' asset quality and earnings", affecting ANZ, CBA and WBC debt. The respective Aussie bank shares traded as low as -4 to -5% , before recovering slightly. ANZ Group was stronger than its peers, attributable to its downplayed discussion of RBS assets purchase.

- Several notable pieces of economic data were seen as mixed, as some of the figures showed slowing deterioration in conditions, while others remained downright woeful. Labor cash earnings in Japan came in at a 13-month low of -1.3% on y/y basis, with overtime pay showing a record fall of -14.8%. Elsewhere in Japan, February vehicle sales remained poor, falling 32%. Among the Tokyo big three, Toyota and Nissan sales declined over 30%, while Honda was off by 21%. Australia's HIA New Home Sales figures pleasantly surprised traders looking ahead to tomorrow's RBA, coming in at a 1-year high of +8.3% amid a 5-year high in housing affordability disclosed last week. Y/Y TDMI inflation was also well ahead of estimates at 3.1% v 2.7%, however February Manufacturing PMI remained subdued - registering a record low and a 9th consecutive contraction at 31.7. Korea's February trade data was a sobering reminder that economic slowdown is worse for an external demand dependent nation, and magnified even further for one with a more rigid protectionist policy relative to its regional peers. February exports were down -17.1%, slightly better that -24.5% expected. However imports saw no such bounce, falling by 30.9% - comparably to prior month's decline of 31.9%. January Industrial Production unexpectedly recovered with a 1.3% rise v -8.0% expected contraction, even as Leading Index figure fell by -4.5%.

- Despite the more sound economic data, sentiment from Australia's speakers was notably more downbeat. Bearing in mind the close call for tomorrow's RBA and the growing expectation of a more modest ratecut - consensus estimates have been downgraded to 25bps from 50bps - this is fairly significant. Australia's Treasurer said Q4 GDP to be released later in the week would be significantly impacted by trade downturn and saw some funding strains for individual states. Prime Minister Rudd also noted that state funding discussions were ongoing, while forecasting a "challenging" year in 2009. Chinalco President talked up the prospects for Aussie resources prospects over the long term however, stepping up efforts to facilitate Rio Tinto partnership. Specifically, he looked to appease large Rio investors with a pledge of diverting $7B of the $19.5B commited to the partnership as going toward investment in Australia, hoping that the deal could be completed by the end of July.

- In currencies, leaders attending the European Union summit were hardly united in response to a call for help from the structurally more vulnerable Eastern European nations. German Chancellor Merkel snubbed a request from Hungarian PM to establish a €190B bailout fund, balking from a blanket relief for the Eastern region. In a troubling sign of Eurozone discord, Hungarian official noted a threat of a "new Iron Curtain" dividing the EU members. EUR/USD was heavily sold from the onset, falling over one big figure from Friday's close below 1.2550. Pound and Swissy were also weaker, with USD/CHF trading close to 1-week highs at 1.1760, and GBP/USD briefly fell below 1.42. In commodity FX, AUD briefly fell below 0.63 for the first time since early Feb, NZD/USD marked fresh 6-year lows at 0.4910, and USD/CAD rose above 1.28 for the first time since early December.
Japanese Yen was stronger against the falling European currencies but pared early gains against the USD, bouncing higher from Friday's 96.90's support.

- Crude oil prices are sharply lower on the session, tracking the declines in equities. Today's crude oil declines also come as South Korea, the world's 5th largest oil importer, reported production and exports figures which reflected the global slowdown. In terms of OPEC news, Iran's oil minister said that OPEC is likely to maintain is oil output at its March meeting, while at the same time noting that he did not believe that the cartel would reduce output further. In the past Iran noted that the rise in oil inventories may warrant added output reductions. Additionally, Algeria's oil minister said that the announcement of added OPEC production cuts was possible at the March meeting after saying on 2/22 that cuts were “very likely”. Spot Gold is higher and gaining for the first time in 6 sessions. Gold opened Asia lower, but later moved higher as Asian equities losses accelerated. In terms of gold demand, a report from the Bombay Bullion Association noted that in Feb India's gold imports were close to zero as the high prices and the global slowdown deterred buyers.