Asian Market Update: China's Bank Advisor Sees Bottom for Domestic Economy, Lifting Regional Equities to a Gain; Japan Trade Balance Improves as both Imports and Exports Plummet at Record Rate; President Obama Addresses Press in Defense of Budget Plan Ahead of Battle in Congress

- Despite extended late session profit-taking that saw US indices pushed down to their worst levels in the final hour, Asian bourses are visibly more reluctant to take a break from buying, trading mixed to positive late in the day. Nikkei225 and Kospi both oscillated around unchanged levels, reversing early weakness coming out of midday break on optimism from China, Australia's S&P/ASX rallied nearly 1% on reports of federal support for state-issued debt , and front-month S&P's implied a slightly higher open at +0.3%.

- PBOC Advisor Fan Gang cited improved car sales and rising investment level in calling the bottom for China's economy, also reflecting on slowing decline in closely monitored steel and energy use.
Acknowledging that high inventories and overstretched capacity remain challenging, Fan Gang said that inflation could be more problematic than the current deflationary winds in the long term even as rate cuts continue to remain an option. Coming out of the mid-day break, equity markets in Japan and Korea bounced in unison with Fan's firmly bullish view.

- In Tokyo, the central banker outlook was decisively more subdued. BOJ Deputy Governor Yamaguchi noted that economic conditions in Japan were more severe than in other countries and would likely stay that way, while also calling for strengthening of banks' capital bases. Moreover, Yamaguchi forecasted continued turmoil in US and Europe, calling for tight credit headwinds to remain high as global monetary and fiscal response gradually worked their way through the system toward improved consumer sentiment. Earlier, BOJ's Shirakawa rejected the notion that Japan is on the brink of a deflationary spiral, but warranted close monitoring to prevent its onset. In otherwise light economic calendar, Japan reported stronger than expected February trade balance, with overall figure coming in at +¥82.4B V -¥20BE and adjusted number seen at -¥43.3B V -¥297.8BE. However, the improved was largely the result of a much weaker than expected Imports component that saw a record drop of 43% on y/y basis. Exports also declined at a record pace, falling 49.4% y/y, above 47.6% contraction estimates. In notable company news, Mitsubishi Heavy Industries was rumored to post a 30% decline in operating profits below ¥70B vs its prior guidance of ¥105B.

- In Sydney, bullish sentiment was galvanized by Federal authorities moving to guarantee a range of old and new state-issued debt maturities. Treasurer Swan announced a 28-day window for states to determine which debt maturities to insure at a 15-35bp premium, also announcing that A$13B for FY09 and A$26B FY10 in new state debt would be issued. The plan is said to be in "national economic interest", designed to support infrastructure and job growth. Key event risk for Australia is set for after-market 3:30amET, when RBA's Stevens could shed some light on the prospects for renewed central bank easing measures next month. Earlier, ANZ forecasted more rate cuts in 2009 taking cash rate to 2.00% from the current 3.25%. In other banking sector news, NAB suggested that funding costs will rise in the foreseeable future. Elsewhere in Australia, Qantas Air confirmed senior executive management cuts amid restructuring plans, and Santos was sharply higher on speculation of a bid for the company by BP, Eni, and Shell.

- President Obama addressed the media mainly in defense of his budget plan submitted to Congress for debate starting later today. Obama stressed sustainability of US economic recovery on the pillars of investment in renewable energy, education, and health care - noting that the latter constituted the biggest driver of budget deficit in its current form. Briefly flustered by the question pertaining to Congressional intent to leave out middle class income tax cut and cap and trade provision measures, he noted that work with lawmakers will be required and gradual steps in all policy directions would take place. Referencing the upcoming G20 summit, Obama saw the goal of consensus building for internationally coordinated response. On currency, the President said the US Dollar was "extraordinarily strong" because investors consider US as most politically stable and did not believe there's a need for global currency as proposed earlier by China's and Russia's officials.

- In currencies, the greenback consolidated its gains after staging a bullish reversal in the US session. EUR/USD ranged at 1.3440-90, USD/CHF targeted 1.1320 highs, and GBP/USD was back below 1.47. In currencies, Japanese Yen pared its losses, consolidating gains below 97.80 in USD/JPY and 132 in EUR/JPY. Commodity majors were also weaker, with AUD/USD below 0.70 and NZD/USD falling below 0.56 for the first time this week after Q1 New Zealand Westpac consumer confidence came in well below prior levels.

- Crude oil prices are lower by more than 0.50%, after gaining during the NY floor session. The decline in oil prices follows the API weekly petroleum report. After the close of the US equity session, API disclosed that during the prior week, crude inventories were higher than expected, while gasoline and distillate supplies were lower than expectations (API PETROLEUM INVENTORIES: CRUDE: +4.58M V +1.1ME; GASOLINE: -805K V -500KE; DISTILLATE: -1.57M V UNCHANGED EST). Later on today, the Department of Energy's weekly inventories report is expected to show that crude supplies rose by 1.1M barrels, during the prior week. In terms of oil demand, Japan, the world's 3rd largest oil importer, disclosed that its Feb crude imports by value declined by 64.7% y/y vs. a prior decline of 8%. In China, the government increased its benchmark domestic gasoline and diesel prices by 3-5%. The government said that the price increase was implemented in order to reflect the recent rise in global oil prices. Spot Gold is higher by more than 0.20%, after declining by more than $28 during the NY session. Gold is gaining in Asia for the first time in 4 sessions as the recent rally in equities has hurt the demand for safe-haven assets. In terms of gold demand, the SPDR Gold Trust EFT increased its holdings of the metal by 10.7 tons to a new record 1,124.9 tons as of 3/24, after the ETF sold 0.31 tons of gold on 3/23.