Asian Market Update: Nikkei Charges Higher on Tax Breaks for Exporters, Improving Auto Sales; G20 Begins to Work on Draft; AUD Retests 0.70 against USD, Rises to Multimonth Highs in Crosses; Euro Braces for Expected ECB Easing, Possible Hints of Quantitative Measures

- Asian equity markets are catapulted higher across the region, tracking last-hour strength that sent Wall St to its best levels on the day. US indices rose on stronger than expected March auto data and Manufacturing ISM. In one of his more successful press appearances, Treasury Secretary Geither also cheered "encouraging signs" of improvement in markets while also rejecting rumors of US automaker bankruptcy. Tracking US gains, Nikkei225 is among the leaders in Asia with a 4.5% rally, Korea's Kospi and Sydney's S&P/ASX are up 3.5% and 2.7% respectively, while front-month S&Ps point to a higher open with a 1.4% advance.

- Broad strength in Tokyo is also attributed to a combination of factors, ranging between domestic policy, positive auto demand update from the US, and currency weakness. According to Nikkei press, proposed changes to tax laws that could take effect for FY08 would exempt dividends paid by foreign units from taxes, benefitting heavily export-oriented auto and electronics names. Automakers are also boosted by surprising evidence of stronger demand in US, where m/m sales rose 24.5% in March even as the figure slumped 37% on a y/y basis. Toyota was up 6%, Honda gained 9%, and Nissan rallied over 10% coming out of midday break. Additionally, weakness in Japanese Yen - less evident against the greenback than in the crosses - is further attributed to outperformance in export names.

- Australia offered fresh evidence of recovery in regional trade and, more importantly, rebound in demand from China. February Trade surplus handily topped A$700M estimates with a A$2.1B figure that saw exports rising 4%, with 11% gain for exports to China and 34% gain to European Union. The report was a timely distraction from deleterious update on Aussie employment picture, as SEEK employment agency confirmed significant weakening in job postings. In notable index names, Rio Tinto and BHP were up 5% and 4% amid renewed strength in commodity metal prices. Qantas Air was also higher by 5% on news the company would increase its excess baggage charge.

- Widely anticipated G20 gathering in London got underway with mixed progress. Comments from communique draft revealed consensus building for a more resolute and far-reaching international regulatory board that would work with IMF to identify economic/financial risks and propose actions.
Communique would also reportedly express support for general SDR allocation to ease liquidity constraints and urge members to avoid excessive FX devaluation steps. Moreover, G20 targeted European tax havens, coming short of naming Switzerland but promising to impose sanctions on guilty states. Notably, IMF's Strauss-Kahn was critical of the initial G20 focus, stating that leaders are "ducking" the issue of cleaning up toxic assets and risk prolonging the global recession if the banking sector problems are not addressed.

- In currencies, the greenback weakness associated with rising risk appetite is most pronounced against Sterling. GBP/USD is up over one big figure, reaching 1.4560's, with EUR/USD trading slightly more muted ahead of the ECB decision later in the day. Consensus estimates point firmly to a 50bp cut, while the ECB camp in favor of "non-traditional" easing measures such as commercial paper buying is also on the rise. EUR/USD is up above 60 pips trading just below 1.33. In commodity FX, AUD is a notable outperformer with a breach of 0.70 against the greenback. The Aussie also reached multimonth highs against EUR and CAD, and was within 10 pips of reaching comparable multimonth peak against JPY at 69.60. Japanese Yen is down just slightly against USD, but losing far more ground against European and commodity majors.

- Crude oil prices are currently higher in Asia and are tracking the gains in equities. During the US session, oil prices declined by more than 2%, as weekly Department of Energy oil inventories were higher than expected (DOE CRUDE: +2.84M V +2.8ME; GASOLINE: +2.23M V -1.5ME; DISTILLATE: +221K V -1ME). In terms of OPEC news, private company Tanker Tracker said that OPEC's production is 700K bpd over its quota. The remarks from Tanker Tracker follow recent comments from OPEC's President in which he was quoted as saying that all members of the cartel were complying with the group's supply reductions. Spot Gold has traded in a tight range in Asia, as the market awaits cues from the G20, US employment figures and the upcoming ECB meeting. According to an analyst at HSBC, the results of the G20 meeting will drive the short-term direction of gold prices and whether or not gold prices will rise will depend on the market's perception of the G20's effectiveness at handling the financial crisis. Today's Financial Times is reporting on the impact that sales of gold scrap are having on spot gold prices. The article noted that the significant increases in sales of gold scrap has been one of the factors that has capped gold prices at $900-$950/oz. The article added that rising sales of gold scrap have led to declines in imports by India. According to a recent report from a traders group, in March India's gold imports were near zero, which would be in line with February's imports.