Asian Market Update: Moody's Zeroes in on US Financials; China Speakers' Broad Agenda Perceived as Short on Detail; Japan CAPEX Plunges to Record Lows, while Australia's Trade, Housing Data Disappoint; EUR, GBP Pare Gains Ahead of Rate Decisions

- Scrutiny of credit rating agencies' role in the wake of a year-long meltdown of US financial system may have translated into a backlash of greater oversight that the hemorrhaging banking industry can ill-afford, as evidenced by Moody's rapid-round fire unleashed on financial survivors in the after-hours session. Within the span of just over an hour, Wells Fargo and Bank of America sr debt ratings were placed on review for possible downgrade, while JP Morgan outlook was cut to Negative, as Moody's forecasted dire conditions to persist for some time amid growing strains for consumers domestically and slumping demand abroad feeding the global slump. And just as the broader market clawed to preserve the Wednesday gains, the credit cloud cast on financials portended yet another storm, with US equity index futures trading firmly down in late Asian hours.

- Sentiment from Premier of China - where rumors of additional stimulus and economic data relief helped reverse deeply bearish overtones just a day before - was also perceivably short on detail, as buyers across Asian bourses rushed to take profits from early session gains. Nikkei225 traded as high as +3.5 before finishing +2%, Korea's Kospi pared early strength to unchanged levels, and S&P/ASX ended the day at a more modest +0.7% after trading as high as +1.7%. China's indices underscored the market's disappointment with the lacking specifics and the absence of a rumored fiscal stimulus increase, as Shenzhen fell 0.4% after leading the region the day before. Addressing lawmakers, Premier Wen maintained the official 8% GDP target for 2009, promising easing of tax burden on individuals, support for internationally invested exporters via fiscal and tax reforms, and domestically-oriented reform in healthcare, public housing, infrastructure and education.
Furthermore, Chinese officials targeted 2009 levels of unemployment under 4.6%, inflation around 4%, and retail sales growth of 14% amid "moderately easy" monetary and "proactive" fiscal policy. Separately, Fitch affirmed China's sovereign rating, citing its commitment to growth and likelihood of additional fiscal measures, but noted that the nation's recovery was also dependent on the extend of rebound for its trading partners, while calling for a 12% export contraction in 2009.

- In Tokyo, a record drop in business spending over Q4 - coming in at -17.3% V -15.5%E - also contributed to profit-taking, while METI agency's forecast of a bottom arriving in the next quarter was not taken particularly seriously. Among the notable Nikkei names, Asahi Glass and Toyota cut their production capacity in the US, while Mitsubishi became the latest automaker to backtrack from its output reduction plans.

- A day after disappointing investors with a first quarterly contraction since 2000, Australia's trade and housing numbers did little to revive data-inspired optimism that presumably caused RBA to stand pat. January Trade surplus came in at 0.97T v 1.1T expected and the prior month's number was revised down by nearly 30%. Both exports and imports continued to contract, coming in at -5% and -7% respectively. January Building Approvals were also disappointing at -3.7%, with the market looking for a first rise in 6 months of contraction at +1.0%. Aussie miners Rio Tinto and BHP were higher on renewed merger rumors at Pilbara, while Lihir fell over 8% after completing 172M share placement. Newcrest Mining was down 3% amid further weakness in spot gold.

- South Korea remained hawkish on intervention capacity of its disclosed FX reserve levels, pledging to continue conducting smoothing operations in the currency markets. South Korea's Finance Minister Yoon forecasted downbeat exports and employment conditions, but looked to assuage sentiment with promise of new tax incentives for home buyers. Shipbuilders Samsung Heavy, Hyundai Heavy, and Daewoo were among the Kospi decliners on plans to sell corporate bonds, while Posco bounced higher after reports of EU withdrawing complaints about Asian steel imports.

- In currencies, EUR and GBP consolidated their US session gains breaking below 1.2580 and 1.4130 respectively - some 70 pips off intraday highs in both USD pairs. Japanese Yen fell to fresh 4-month lows against the greenback, with USD/JPY reaching 99.50. Commodity majors were traded lower on Aussie data weakness, with AUD/USD falling about one big figure toward 0.6410, USD/CAD retracing the drop to 1.2780, and NZD/USD trimming gains to intra-day resistance turned support at 0.5010.

- Crude oil prices are currently lower, after gaining by more than 8% during the NY session. The gains for oil prices during the NY session followed reports that China would increase its economic stimulus measures and additionally seek to increase its purchases of oil for its reserves. Today, China announced that it plans to earmark CNY78.3B ($11.5B) to expand its reserves of materials, including crude oil, nonferrous metals and specialty steel. Additionally, the most recent weekly US Department of Energy report showed that during the prior week crude inventories unexpectedly declined. With the March OPEC meeting nearing, speculation continues to rise regarding the cartel's next decision regarding production. During the US session, it was reported that OPEC's President opposed an additional output cut at the moment, but other members where still undecided. The WSJ noted that the decision by Saudi Arabia to narrow the discount on its Arab Heavy grade crude shipped to refiners in northwest Europe to $3.70 from $5.25 in April may strongly suggest another large cut in production by OPEC will be announced soon. At the time of writing, spot gold prices are higher for the first time in 9 sessions. Some are citing bargain hunting for today's gold buying as the metal has declined by more than 9% since it rose to an 11-month high of $1,006.29/oz on Feb 20. In other metals trading, Shanghai Copper rose by its daily limit of 5% on China's stimulus measures.