Asian Market Update: Asian Bourses, US Index Futures Stage Broad-Based Rally as Treasury Secretary Geithner Fills the Void of Addressing Banks' Toxic "Legacy Assets" with Rousing WSJ Editorial; Risk Appetite Takes EUR, AUD to Multi-Month Highs vs Yen

- Asian equity markets, led by shares of financials and energy, have moved sharply higher across the board as US Treasury Geithner unveiled the most detailed plan up to date for dealing with banking balance sheets rife with toxic assets. The Nikkei spiked above 3% on the session coming out of midday break during which more details on Geithner plan was released. In Korea, the Kospi picked up nearly 2.5%, while Australia's S&P/ASX was up 2.3% entering the final hour. Front-month US index futures were also sharply higher in reversal of last week's profit-taking by the buyers, with S&P gaining just over 1.5%.

- Coming ahead of the announced 8:45amET (1245 GMT) press conference in which he is expected to address the details of the proposed Public-Private Investment Program, Wall Street Journal released a Geithner-published editorial titled "My Plan for Bad Bank Assets" introducing the Public-Private Investment Program. Under the plan that will initially provide financing for $500B and potentially be expanded to up to $1T in the future, the established and incentivized with low borrowing rates, public-private partnerships will buy real-estate related assets from banks and securities from the broader market.

- Under the discussed measures, the government plans to fund between 50-80% of the purchase price of the assets acquired under the program. In terms of how assets will be priced under the Treasury's plan, private-sector purchasers will establish the value of the loans and securities purchased under the program. In addition to the Public-Private Investment Program, the government plans to expand the Fed's TALF program to include legacy or older assets, and the Treasury may increase the government's contribution to the program to $100B from the current $20B. The government's toxic asset plan will also involve the FDIC. The FDIC will back the Disposition Finance Program which will acquire and sell whole loans. As part of the Disposition Finance Program, the FDIC will provide up to $500B in guarantees against losses on pools of loans that banks are looking to sell. The US Treasury Secretary has stressed that the plan includes both funds from public and private sources and that it gives investors incentives to take on risks.

- The Treasury's Public-Private Investment Program shares some similarities to the Resolution Trust Corporation (RTC), which was created to help liquidate assets in the 1990s. Like the RTC, the Public-Private Investment Program will use public-private partnership to purchase distressed assets with loans from the government. One key difference between the RTC and the Geithner plan is that the RTC mostly dealt with the assets of banks that were already declared insolvent. In terms of how assets were priced under the RTC, a derived investment value of the assets (estimate of the liquidation value of the assets based on an RTC formula) was multiplied by a percentage of the derived investment value based on the bid of a selected general partner. Later, the RTC revised its pricing strategy to rely on competitive bids by pre-qualified investors.

- In other Asian session developments, US President Obama followed last week's appearance by Fed Chairman Bernanke on CBS 60 Minutes, where he continued to defend both the aggressive government response and his beleguered Treasury Secretary. Notably, Obama saw "flickers of hope" in the economy evidenced by growth in refinancing and low borrowing rates, and also noted that the US authorities do have limits on spending to the extent of their borrowing capacity from foreign appetite for US treasuries. Elsewhere, ECB's Trichet confirmed sentiment from other European monetary officials that the policy rate could be decreased again as conditions for European economy over 2009 remained "very difficult". Moreover, Trichet noted that an increase in global fiscal stimulus was not necessary, but rather swifter action on announced policy plans to shore up troubled banks in the US and Europe would be more effective.

- In currencies, the rise in risk appetite translated into broad weakness for US dollar and Japanese Yen. In European majors, EUR/USD rose one big figure from Friday's final levels above 1.3680, USD/CHF briefly tested 1.1220, and GBP/USD traded as high as 1.4530. Japanese Yen was heavily sold, both against USD and the crosses, reaching multi-month lows vs EUR and AUD. USD/JPY traded in 96.50's and GBP/JPY reversed its rally after testing 140.20. EUR/JPY reached its best levels since Oct 22nd above 131, while AUD/JPY traded above 67 for the first time since early January.
Higher-yielding commodity currencies of Australia and New Zealand continued to be rewarded by dollar selloff by wider margin than European majors. AUD/USD reached the highest level since Jan 12th above 0.6970, while NZD/USD pushed higher above 0.5650.

- In commodities, Gold Trust holdings of SPDR ETF GLD rose to fresh record highs of 1,114.60 metric tons vs. 1,103 tons prior, helping gold prices remain above $950 despite the apparent buying interest in equities. An outflow from the equity markets in recent weeks have rewarded gold as a de facto safehaven asset. Gold prices also appear to be reistablishing a traditionally inverse correlation with the US dollar that had been visibly broken over the course of February. Front month crude approached its best levels since early January just below the $53 handle. Waning geopolitical risk premium appears to be outweighed by demand concerns, with both US and Iran authorities looking to deescalate the standoff. Speaking on 60 Minutes, Pres. Obama said he "fundamentally disagrees with VP Cheney" that differing ideologies with Arab world cannot be reconciled, while Iran Supreme Leader Ayatollah Ali Khamenei noted that Iran is willing to change if US is willing to change its attitude toward Iran after last week's call for reconciliation from the White House.