Asian Market Update: Nikkei Succumbs to Currency Pressure and Risk Aversion Shifts into Higher Gear as USD, JPY Extend Gains; Round Two of TALF Sees Limited Interest; Australia's Feb Home Lending Disappoints, but Apr Consumer Confidence Soars

- Ambivalence seen in Asian bourses in the prior session has given way to panic selling as bearish momentum on Wall St. leading US indices to fall over 2% haunted the Nikkei, Kospi and ASX by comparable margins. Nikkei225 sold off sharply coming out of midday break to trade down 2.9%, while S&P/ASX and Korea's Kospi were off by 2.4%, with financials leading the decliners. The official start of the Q1 earnings season saw a 3 cent bottom line miss from Alcoa, sending its shares down 3% afterhours. Bed Bath and Beyond made up for that however with a surprisingly strong result for troubled consumer sector, registering Q4 net gain of $0.55 v $0.44e and providing Q1 guidance in line with estimates. BBBY traded up 14% in the after-hours session.

- The second round of TALF loan offering fell far short of the already disappointing first round on March 19th, when $4.7B of the $200B offered were requested. This time, only $1.7B were called, comprised of $897M in credit card and $811M in auto debt. Once again, there was no clear demand for student or small business loans as investor distrust in participants' financial health remained visibly on display. Doomsayers Roubini and Whitney were up to their usual tricks of forecasting more pain for financials and general malaise for the economy, while WSJ's "Heard on the Street" honed in on "political risk" of Congressional review of bailout efforts presenting clear and present danger to banking sector investors in 2009.

- Economic calendar was weighed heavily to Aussie data that showed mixed findings from housing and consumer sectors. February home loans came in at their weakest monthly increase since September at 0.4% v 2.0% expected, falling short of even the most conservative analyst estimates.
As in the prior month however, Aussie consumer confidence balanced out the mortgage malaise with the first rise since December at +8.3% v -0.2% prior. In Japan, BOJ monthly report largely reiterated sentiment expressed in the decision yesterday, noting more economic pain deterioration amid severe financial and industrial backdrop.

- In notable Asian region shares, Aussie banks were lower across the board as closer examination of RBA revealed more ambivalence in lowering cash rate beyond yesterdays cut to 3.00%, which may account for two major banks only passing 10bps cut to their lending rates. Gold producers were higher by about 1% as precious metal prices rallied on risk aversion, and telecom giant Telstra extended prior session's rally on govt announcement of a broadband infrastructure project. Rio Tinto was also higher despite the broad market selloff, as both the company and Chinalco reiterated their commitment to the announced partnership that has increasingly become shrouded with uncertainty ahead of the shareholder vote. In Tokyo, Kawasaki Kisen and Daiwa Securities fell 3% and 6% respectively on speculation of downgrade in FY earnings, while Sharp fell briskly on downward revision in FY earnings guidance and Goldman Sachs downgrade. In Korea, Hynix extended its gains after announcing it has entered into DRAM supply contract with as many as 3 clients, providing for DRAM price increase of up to 20%.

- In currencies, the greenback and Japanese Yen were on the receiving end of risk averse flows.
USD rose about 70 pips against both EUR and GBP to 1.3170s and 1.4660s respectively. In commodity FX, AUD sold off from intra-day lift above 0.7150, but was contained by pivotal former resistance turned support around 0.7050. NZD/USD was marginally weaker, falling to 5-day lows just above 0.57. Japanese Yen repeatedly tested the downside of psychological 100 level against USD but still found USD/JPY buyers around US session lows of 99.85. EUR/JPY and GBP/JPY moved below 132 and 147 respectively.

- Crude oil prices are lower by more than 1%, after closing below $50/bbl during the NY floor session. The Asian drop in oil prices comes as equities are declining and after the API's weekly report showed that crude and gasoline inventories were higher than expected during the prior week (API PETROLEUM INVENTORIES: CRUDE: +6.9M V +1.4ME; GASOLINE: +2.9M V -1.7ME). Later on today, the Department of Energy will release its inventories report for the prior week. Spot Gold is higher by more than 0.10%, and tracking the weakness in equities and renewed concerns regarding banks.