Asian Market Update: Rising Bankruptcy Prospects for US Auto Sector Prompts Risk Aversion in FX, but Lifts Asian Automakers as Nikkei Shrugs Dismal Record Low Tankan; Housing Rebound in Australia Mitigates Poor Retail Data, Helping AUD Retain Firm Footing; RBNZ's Bollard Talks Down NZD

- Uncertainty over the future of the US automakers played the lead role in another volatile Asian session after a rumor of the US administration favoring GM bankruptcy added to the jitters of profit-taking in the final hour of Wall Street trading. Media speculation citing members of Congress suggesting that reorganization for GM and firesale at Chrysler (in the absence of Fiat deal) was President Obama's preferred option sent front-month S&Ps sharply lower by nearly 2%, lifting the stalwart FX beneficiaries of risk aversion - namely USD and JPY - against the European and commodity majors. In turn, Japanese and Korean automakers cheered the prospects of augmented market share. Honda and Nissan were up over 7%, Hyundai gained 6%, while Toyota and Kia picked up about 5%. The broader indices in Japan and Korea were also higher, with Nikkei225 and Kospi trading up 2% coming out of midday break. US administration officials were quick to respond that the favored bankruptcy scenario report was not accurate, standing by its 60-day and 30-day commitment to GM and Chrysler. However, the kneejerk response speaks volumes to the market discomfort with the too-big-to-fail / too-expensive-to-keep dilemma. Moreover, today's WSJ "Heard on the Street" feature reaches a poignant conclusion of GM's current commitments and assumptions of union and debtholder concessions that overshadow even GM's optimistic operating profit target scenarios, making the governments prerequisite for profitability that much more elusive.

- Incoming fundamentals in Japan remained grim as the closely tracked Tankan data sank to new lows. First quarter large manufacturers index figure saw a record drop of -58 vs the expected -55, while the non-manufacturing number came in at decade-low -30, also worse than the -25 expected.
Japan Government spokesman Kawamura noted that Tankan data underscores the severity of current economic conditions, seeking to give credence to PM Aso's call for more stimulus seen in the prior session. In notable Nikkei names, chipmaker Elpida was up 14% at the break after being chosen by Taiwan Memory as a technology partner, while Hitachi picked up nearly 3% on interest for its Plasma TV panel plant from Showa Shell. Financial names Mitsubishi UFJ and Mizuho shrugged Nikkei speculation of company net losses in this fiscal year, gaining 4% and 2.7% respectively.

- Australia saw a mixed bag of economic figures that limited retracement in across-the-board advance of the Aussie Dollar in European and US hours. February retail sales saw the largest fall since July of 2000 at -2.0%, however building approvals surprised on the upside with a +7.8% figure, best gain since April of 2008. Finance Minister Tanner commented on the strain of generous stimulus on the budget, stating that the process involves difficult choices while pledging swift return to fiscal responsibility. S&P/ASX intraday gains were far more subdued, subsequently leading the index to trade unchanged just ahead of close. OZ Minerals and OneSteel weighed on Aussie market, with the former agreeing to China's Minmetal deal some 30% below the initial offer and the latter cutting steel production at two of its plants. Rio Tinto CEO appeared on CNBC Closing Bell, remaining upbeat on the controversial Chinalco deal while targeting a shareholder vote at the end of Q2 or early Q3.

- Elsewhere in Asia, China's President Hu Jintao was somewhat more cautious than some of the other Chinese officials in recent weeks, noting that financial crisis is still spreading and deepening as local economy continued to face increasing difficulties. In South Korea, Economic Ministry officials were more upbeat, suggesting the economy may have hit bottom in January-February. South Korea's President Lee also made a CNBC appearance, calling for a 2009 trade surplus at $15-20B amid growing export sector.

- In currencies, the greenback and Yen gained on European and commodity majors on accentuated risk aversion just after the preferred GM bankruptcy rumors. EUR/USD and GBP/USD fell below 1.3180 and 1.4280 respectively, while USD/CHF reached intraday high above 1.1440. Canadian Dollar reached 2-week lows against USD at 1.27, while AUD/USD fell below 0.69. NZD/USD collapsed nearly two big figures below 0.56 after RBNZ's Bollard saw rates remaining relatively low for an extended period, notingthat the rise in long term rates were inconsistent with the policy outlook.
Japanese Yen saw heightened volatility, spiking lower after Tankan before rallying sharply on GM rumors across the board, leading EUR/JPY to test 130 and GBP/JPY reach 140.50's.

- Crude oil prices are lower in Asia and tracking the decline in the S&P 500 futures contract. During the US session oil prices rose by more than 2.5%. Following the US close, API disclosed that during the prior week, crude, gasoline and distillate inventories were higher than expected (API PETROLEUM INVENTORIES: CRUDE: +3.28M V +2.8ME; GASOLINE: -451K V -1.5ME; DISTILLATE: +1.78M V -1ME). Later on today, the US Department of Energy will release its oil inventories figures for the prior week. In terms of OPEC related news, during the US session, an official from Libya was quoted as saying that if the global economy continues to worsen it could lead to OPEC taking action on supplies. Also, Venezuela's President Chavez said that he believed that $80/bbl is a fair price for oil.
At the time of writing, gold prices are marginally higher after rising by more than $7 during the US session. Some markets players noted that the G20 meeting could be a catalyst for gold prices. However a few days ago, France said that currencies were not on the agenda at the summit.