Asian Market Update: Asian Bourses Pare Early Gains as Nikkei Retreats to Unchanged and S&P/ASX Turns Negative; AUD Pulled Lower Once Again on Mixed CPI, Dovish Treasury Statements; China Central Bank Deputy Gov Sees Bottom in Q4, Signs of Recovery with Upward Momentum in Q1; Crude Drifts Despite Draw in IEA Inventories

- A pronounced recovery over the course of the US session in financials - the bellwether sector for broader markets in recent months - is seeing notably little follow-through in Asian hours, with more Dow components on the earnings docket for Wednesday morning. The markets will look for results from Boeing, McDonalds, and AT&T. In addition, Wells Fargo - the first large bank to inspire a sharp equity bounce two weeks ago will disclose more details on its upbeat guidance and Morgan Stanley will also report Q1 results. In the mean time, the Nikkei pared its initial 1% rally to trade around unchaged levels coming out of midday break, the Kospi is below its best levels of +1.4%, while S&P/ASX continued to underperform indices on a relative regional basis, falling into negative territory of -0.2% after trading up 0.6%. Front-month futures in US point to lower open with a 0.5% slide in S&P's to $842 lows.

- In Tokyo, incoming fundamentals are largely mixed, as better than expected monthly trade numbers were counterbalanced by a poor fiscal year report card. March Merchandise of Trade came in at a surplus of +¥11B v estimates of -¥27BE, and imports and exports decline decelerated from last month's record levels. However, with March closing the book on the fiscal year, markets were privy to the first FY trade deficit in Japan in 28 years, with a 16.4% drop in global exports seen as worst on record. In other developments, Japan's Upper Parliament chamber passed the corporate recapitalization plan, giving govt the authority to inject public funds directly into non-financial companies - a contrast to former restriction to investment in banks only, who would then trickle down funds through their holdings of company shares. The good news here was once again mixed with the bad, as Japan's Finance Ministry downgraded its assessment on economies of 10 out of 11 regions amid worsening economic conditions. Increasingly dire environment was also reflected by Fitch as it called for additional federal funding for Japan's floundering banking sector. In notable Nikkei names, Elpida and Pioneer were the biggest winners on the session. The former had confirmed prior session's press speculation that it would raise chip prices by as much as 50% amid declining glut on the market and also was rumored to request some ¥50B in public funds, sending its shares up about 18%. Pioneer rallied 20% on rumors of the govt considering $30B equity investment in the company. Among Nikkei decliners, KDDI saw some profit-taking from yesterday's rally on Deutsche Bank price downgrade, leading Telecom to the forefront of sector losers, and Canon pared early session losses, falling to negative after posting poor Q1 sales numbers.

- Elsewhere in Asia, relative equity weakness persisted in Aussie markets following confirmation of economy bracing for imminent recession by govt and monetary officials earlier this week. Q1 CPI released today fell short of estimates on headline level with 0.1% rise v 0.5%e, but did beat slightly on "Trimmed Mean" (or core) basis, rising 1.0% q/q and 3.9% y/y vs respective estimates of 0.8% and 3.8%. Subsequently, Australia's Treasurer Swan reflected on "significant moderation in inflation", forecasting further easing pressures in months to come that could potentially solidify more RBA easing in early May. In China, PBOC Deputy Governor Yi offered the rosiest outlook from the central bank to date, pointing to signs of economy hitting bottom in Q4 with positive indication to continued recovery trend in economic data for Q1. Earlier last week, PBOC Governor Zhou was more downbeat, viewing China's economy still struggling against impact of economic crisis in spite of indications of a rebound. Recall that despite worse than expected Q1 GDP, China's industrial production came in slightly above estimates. Brighter outlook was also seen in a research note from Goldman Sachs, raising China GDP forecast for 2009 to 8.3% from prior 6.0%.

- In currencies, the Aussie was one of the weaker majors as traders continued to respond to economic downgrade from local officials and questionable outlook on inflation figures. AUD/USD pared earlier rebound, trading down to 0.7020's while EUR/AUD was higher by 200 pips, trading above 1.8350. European majors drifted in tight ranges, with EUR/USD holding 1.29 support and GBP/USD downside contained by 1.26. Japanese Yen saw modest strength vs USD, rising to 98.10, and more pronounced rally against the weaker GBP and AUD, trading about 150 pips higher from session peaks to respective 143.50 and 69.00 levels.

- Crude oil is higher on today's session. The gains in oil prices are coming after API disclosed that during the prior week crude inventories were lower than expected (API PETROLEUM INVENTORIES: CRUDE: -1M V +2.5ME). Later today, the US Department of Energy will release its crude inventories for the prior week. According to one survey, crude inventories are expected to rise by 2.5M barrels.
At the time of writing, spot gold is little changed as the metal has remained quiet for most of the Asian session. In terms of the outlook for gold prices, the upcoming US bank stress tests results are seen as a potential catalyst for the market.