Asian Market Update: Flight from Financials Carried to Asia; House Lawmakers Approve Mortgage Adjustment Powers for Judges; China Cheers its Timely Response; Japan Sees Little Progress, Planning to Downgrade Economic Forecasts; USD Pressured Ahead of Jobs Data in the Wake of ECB, BOE Easing

- After a brief session of respite, bearish sentiment centered around US financials sparked another massive selloff on Wall St, as markets remained leery of the dreaded employment data on tap for Friday. Investors took notice of a downbeat Moody's credit bias for Wells Fargo, JP Morgan and, Bank of America, and balked at Citi below a buck, piling back into safehaven Treasuries and Gold. Asian bourses once again bore the brunt of US decline, as Nikkei closed at session lows of -3.5% - just 11 points above multi-year close low, ASX fell -1.4%, while Kospi shed another 0.3%. Financial names did poorly across the board: In Tokyo, Mitsubishi UFJ and Mizuho were down 4.5% and 5.5% respectively, Sydney's MacQuarie and ANZ were off by 7% and 2%, and Korea's Woory Finance and KB Financial were off by 2% and 3% - all outpacing regional index declines.

- Notable after-hours developments in the US were mixed, as lawmakers struggled to backstop the asset value slide in housing and financials. The House voted in favor of allowing bankruptcy judges to make changes to primary residence mortgages and permanently approved FDIC insurance increase to $250K. However, the $410B budget was stalled in the Senate until next week, without enough Democrat votes to keep Republicans from pinning additional amendments on the legislation.
Additionally, WSJ reported the FDIC would be allowed to borrow $500B from the Treasury to support the insurance increase after request from banks to pay more for FDIC provision met with resistance.
Recall two days ago, FDIC's Bair said the insurance fund could be depleted if the agency does not impose additional fees on the banking industry, resulting in a large number of bank failures.

- Speakers in China were vocal for the second straight day, maintaining an upbeat tone set in by its recent commitment to meet the 8% 2009 GDP target. PBOC Governor Zhou said monetary officials are inclined to wait for policy measures to take effect before taking additional steps, but have contingency plans if conditions deteriorated further. Zhou also noted that improving lending conditions and growing money supply were indicative of the impact of recent monetary policy.
Finance Minister pledged government support to social safety and health care as steps to aid recovery in consumption. Finally, NDRC once again hinted that the government may augments its CNY4T plan, noting possibility of adjustment in spending for certain industries beyond the initial stimulus package. NDRC also reflected on hints of economic stabilization but promised continued close monitoring. Notably, China's February trade figures - not expected to be released officially until next week - were rumored by the press to show a 20% export decline and a sharply shrinking trade surplus. This would be an indication that while external demand remains weak, imports may be stabilizing.

- Despite China's exuberance, Japan's speakers retained downbeat tone amid consistently weak economic data in recent sessions. BOJ's Yamaguchi said the central bank did not rule out return to zero rates and quantitative easing, with augmented policy response needed before the end of the fiscal year in March. Specifically, he said the BOJ could expand corporate debt purchasing, but shied away from JGB buying - noting that would spread debt concern. Difficult funding conditions in corporate sector were underscored by Elpida, Fuji Heavy, and some smaller Japanese banks - all rumored to be considering asking the government for loans - and a reported allocation of as much as ¥3T in low interest loans for companies by the Japan's authorities. BOJ Governor also saw economy in severe condition that required a global improvement, while Finance Minister Yosano acknowledged the economic data as below expectations, requiring a revision to government's economic forecast.

- Elsewhere in Asia, Korea continued to assuage market worries about its currency after KRW plunged to fresh 11-year lows at the open. South Korea's Presidential aide said FX reserves were more than adequate, helping USD/KRW come of its low levels. In Australia, Prime Minister Rudd urged banks to reduce their lending fees in light of deteriorating global conditions, saying the risks on the downside will remain "according to all global data." In notable Aussie shares, goldminers Newcrest and Lihir, as well as energy sector's Woodside Petroleum, countered poor financials with rallies on metal and crude strength.

- In currencies, European majors were sharply higher in the wake of 50bp cuts from ECB and BOE, with GBP gaining particularly strongly despite quantitative easing details and CHF breaking critical 1.47 support against the Euro. EUR/USD rallied to 1.2650, GBP/USD was two big figures higher from session low above 1.4250, and USD/CHF fell to two-week lows. Commodity majors AUD and CAD were also recovering the recently lost ground against the greenback, trading at 0.6440 and 1.2820 respectively. Japanese Yen oscillated around 98.00 before reversing early session weakness to test the downside of 97.50.

- Crude oil prices are currently higher, despite the declines being seen in most Asian equities indices. During the NY session, oil prices closed lower by more than 3%, tracking the drop in US stock prices.
Additionally, there was some disappointment in the US markets regarding China's failure to increase the size of its stimulus plan, which had driven gains in commodities prices earlier during the week. In terms of OPEC related news, Tanker Tracker noted that it expected OPEC's exports in the 4-weeks to March 21 to decline by 430K bpd. A few weeks ago, Tanker Tracker estimated OPEC's exports in the 4 weeks to March 14 to be down 400K bpd. Additionally, the Venezuela's President Chavez noted that the price of oil has “more or less” stabilized and that OPEC prevented prices from falling below $25/bbl. Back on 2/20, Chavez said that oil prices were too low. Spot Gold prices are higher for the second consecutive session after declining for the prior 8 days. Gold prices gained more than $20 during the NY session, as US financials came under renewed pressure, with Citigroup's stock price falling below $1.00/share at one point during the session. Also, the WSJ is reporting that the US Senate Banking Committee Chairman Dodd is seeking to allow the FDIC to temporarily borrow as much as $500B from the Treasury Department in order to replenish the FDIC's deposit insurance fund, which had around $19B at the end of 2008. Another factor that may be gold supportive is the Bank of England's decision to undertake quantitative easing. Looking ahead, today's US payrolls report may be an imminent event risk for gold.