Asian Market Update: Asian Bourses Succumb to Profit-Taking as Treasury Officials in US, Australia Scrutinize Executive Compensation in Wake of AIG Debacle; BOJ Expands Monthly JGB Purchases, Sending Yields Lower; IMF Forecasts Further GDP Deterioration for India, While World Bank Follows Suit on China

- After another strong open, the abrupt correction across the Asian bourses lended modest credence to skeptics calling the recent bounce a bear-market rally. In Tokyo, the Nikkei traded up over 1%, but entered mid-day break around unchanged levels and fell to session lows after BOJ announcement. Likewise, Korea's Kospi and Sydney's ASX fell below opening levels after an initially strong start. Front-month S&Ps are once again pointing to a weaker open with a 0.3% decline, however the past two sessions have proven bullish resilience on Wall St. despite declining index futures in Asia.

- Rising backlash against executive compensation in the financials, fuelled by reports of exorbitant payments within banks infused with bailout capital, prompted the early reversal. US House Speaker Pelosi expressed hope that AIG bonus recovery legislation would be on the floor this week, while on the Senate side, Sens Baucus and Grassley proposed a a 70% tax on executive bonuses at bailed out firms. Increasingly criticized for his mishandling of AIG, Treasury Sec. Geithner announced that he will work with AIG Chief Liddy to wind down the company in an "orderly way" so as to protect the US taxpayers. In a letter sent to Congressional lawmakers, the Treasury was also said to be combining efforts with the Justice Department to determine how AIG bonuses may be recouped.
Australia's Treasurer Swan echoed the hardline government position against the compensation "loopholes" in financial services, threatening criminal sanctions on breach of forthcoming regulations spawning from compensation review by the productivity commission.

- Bank of Japan voted unanimously to leave interest rates unchanged at 0.10% but notably expanded its monthly JGB purchases from ¥1.4T to ¥1.8T, sending JGB yields sharply lower. Accompanying the decision, BOJ kept its economic assessment unchanged, calling for continued deterioration in domestic economy along with further global malaise. Additionally, while Japan's policymakers reiterated expectations of a recovery in late 2009, they also warned that inflation expectation required monitoring for downside risks and outlook uncertainty remained high.

- In company-specific developments, shares of financials across the region traded off their early session highs on stern AIG rhetoric coming from Treasury's Geithner. Elsewhere, Hitachi Ltd. and Sharp were reportedly in talks with their employees to delay regular wage hikes. In Sydney, Rio Tinto was sharply weaker by as much as 9.6% amid growing investor discontent over Chinalco deal that has prompted Aussie lawmakers to vote on foreign investment laws as early as today. Goldman Sachs added to bearish Rio Tinto sentiment with a cut to a Sell rating from Neutral. In other Aussie names, David Jones retailer was sharply higher after posting strong first half results and maintaining interim dividend level, while Newcrest Mining could not shrug the decline in gold prices, falling 2% despite maintaining plans for mine development during difficult economic environment.

- World Bank and the IMF expressed growing pessimism on emerging economic giants in Asia, with the former cutting China's 2009 GDP to 6.5% from 7.5% and the latter forecasting India's growth at 6.3% in FY08/09 and 5.3% in FY09/10. The World Bank said China's expected weakness was based more on the international outlook, but noted that consumer inflation was likely to fall beyond the February decline. Furthermore, China's 2009 export outlook remained "gloomy" and additional measures to stimulate domestic consumption were needed. In turn, the IMF encouraged additional fiscal stimulus in India based on its high debt-to-GDP ratio. In other notable macro developments, South Korea reported the highest jobless rate since August 2006 at 3.5% amid the largest monthly job loss since September of 2003.

- In currencies, a more cautious tone in terms of risk appetite seen in equities translated into decelerating USD decline against the majors. EUR/USD peaked just above 1.3050 before retracing toward the session's opening levels, GBP/USD was supported at 1.4030, while USD/CHF extended its correction from last week's post-SNB spike below 1.18. Commodity majors also remained predominantly rangebound, with AUD/USD looking to test 0.66, NZD/USD falling below 0.53, and USD/CAD unable to breach below 1.2680. Japanese Yen traded mixed, reaching its lowest level against the Euro since late December, but rising slightly against the greenback to its best session levels just below 98.30.

- Crude oil is lower by more than 0.60%, after gaining by more than 3.5% during the NY floor session. The NY session gains came as US equities rose. In terms of oil supplies, API reported that during the prior week, crude and gasoline inventories exceeded expectations (API PETROLEUM INVENTORIES: CRUDE: +4.65M V +1ME; GASOLINE: +383K V -1.5M). Looking ahead, the Dept of Energy's weekly inventories report for the prior week will be released later on today. According to one survey, crude oil inventories are expected to have risen by 1.5M barrels, while gasoline supplies are expected to have declined by 1.5M barrels, during the prior week. In terms of OPEC commentary, the cartel's Secretary General Khelil noted that OPEC would reach a 95% compliance rate by the May meeting and that OPEC may have to lower output if demand continues to fall. Spot Gold is lower by more than 0.10%, after declining by more than $5.00 during the NY session. Of note the SPDR Gold Trust ETF did not increase its holdings of gold to a new record on 3/17, after doing so on both 3/15 and 3/16.