Asian Market Update: China Industrial Profits Plummet, Punishing Commmodity FX; Japan Takes a Step Closer to Dreaded Deflation while South Korea Marches Toward Official Recession; Kiwi Q4 GDP Beats Estimates, but Still at 17-year Lows

- Asian equity markets are reversing the trend of opening lower and finishing stronger established in the last several sessions, taking cue from another Wall St. rally to open sharply higher before paring their gains. In Tokyo, the Nikkei traded as far up as +2.3% but entered the midday break up just 0.9%, the Kospi retreated to unchanged levels after rising by over 1%, and S&P/ASX fell below 3,700 for a 0.8% gain after rising by double that margin in the first hour. Front month S&Ps had also pared back initial advance, declining 0.4%.

- Questionable economic data across the region appears to be weighing on investor sentiment while giving the buyers a reason to take some profits ahead of the weekend. New Zealand got the ball rolling with the largest Q4 GDP decline since late 1991, even as it beat the expected contraction of -1.1% by 2 ticks. New Zealand economy has been shrinking steadily through 2008, although its currency solidified its spot has been rewarded recently with a lift against most of those in the G10.
Kiwi Trade Balance countered the mixed GDP with a strong exports figure, rising to +489M for a first positive print in a year. Japan extended a string of poor economic data for the entire week - a range that included record drops in imports and exports, underperformance in manufacturing, and a miss in corporate service price index, confirming the growing sentiment among officials that domestic economic conditions were severe. Japan's National CPI fell 0.1% in February - the first decline since Sept of 2007 - giving rise to more market speculation over building disinflationary pressures haunting Japanese economy. Much like BOJ's Shirakawa after CSPI, Japan's Finance Minister Yosano promptly engaged in expectation management, noting that it was too early to pin the dreaded deflation stigma on the economy. Retail sales did little to relieve increasingly more downbeat Nikkei sentiment, falling by multi-year record pace of 5.8%. Sharp fall in YTD China's February Industrial Profits were particularly damaging, coming in at -37.3% v prior 4.9% growth amid above 75% drops in power industry and oil/gas industry profits. Commodity-driven markets of Australia, as well as its currency, were driven lower following the China release.

- Among the more notable company-specific developments in Asian hours, Nikkei's Komatsu was rumored to have downgraded its FY09 operating profit below ¥100B vs ¥197B expected, Elpida remained heavily bid from prior session's rally as share-placement of its unit portended the company's commitment to meeting its financial obligations, while Mizuho Financial fell sharply after Mainichi report on the company's possible investment in JP Morgan in the event of a derailed Merrill partnership. In Sydney, Qantas Air and Rio Tinto were among the gainers, the former rallying on City upgrade to Buy and latter extending its advance after stating that the company has options beyond Chinalco. Woodside Petroleum fell nearly 3% as oil prices reversed their rally, and gold producer Newcrest was lifted by close to 2% initially before reversing lower as spot gold retreated from $940.
In Aussie financials, CBA joined Westpac and ANZ in calling for lower cash rate, implying that the RBA has room for additional easing. Meanwhile, MacQuarrie was stronger after announcing it was in talks to acquire Canadian investment advisory Tristone Capital. In Kospi names, South Korea's government reportedly looked to expand its guarantee on the foreign borrowings of local banks by 1 yr while automakers cheered policymaker plans to boost car sales.

- In currencies, volatility was predominantly subdued after US-China fireworks on global reserve currency debate. Commodity majors traded heavier, with the Aussie notably weaker after China's industrial profit data falling to 0.70, and NZD/USD retreated from its post-GDP rally as it continued to struggle to test 0.58. Japanese Yen was firmer against USD and GBP, falling about 60 pips against each to US session lows around 98.20 and 142.20 respectively. European majors were marginally higher by 40 pips across the board - EUR/USD rose to 1.3575, GBP/USD traded as high as 1.4490, and USD/CHF fell to 1.1230.

- Crude oil prices are declining in Asia, after gaining by more than 2% during the NY floor session. In US trading, oil rose as equities gained. Additionally, a report by tanker tracking company Oil Movements noted that OPEC's oil exports for the four-week period to April 11 may decline to 22.23M bpd vs. 23M bpd in the 4 weeks to March 14, which would be the lowest level of exports by the cartel since mid-2003. In other oil related news, Venezuela said that OPEC could request an additional production cut at its next meeting if needed after on March 19, Venezuela's oil minister noted that his country was not planning to cut output further. On a weekly basis, oil is on track for its 6th consecutive weekly gain. Spot Gold is lower, after gaining more than $4.00 during the COMEX session. According to some market players, the NY gains for gold prices were partially due to the expiration of April options. In terms of factors driving gold prices, an analyst at HSBC noted that if the US toxic asset plan works and eases concerns about the US financial system this could weigh on gold prices. Also, the analyst said that the fact that the Fed is not overly concerned about near-term inflation, could hurt gold. Gold prices are set to end this week lower, and also the metal is on pace for its first monthly decline in 5 months.