Asian Market Update: South Korea Averts Recession, but Kospi Slides on Mixed Results from Chip Sector; Japan's FSA Scrutiny on Margin Trading Boosts JPY, as Nikkei Slides; PBOC Officials Expect Slow Recovery, to Maintain "Moderately Loose" Policy; Sterling Dips on Rumors of UK Sovereign Rating Downgrade; Gold Hits Multi-week Highs above $910 on China Holdings Report

- The week in Asia that began with Australian officials conceding the economy descending into recession ends with a surprising development from South Korea, where local economy averted technical definition of a recession on today's GDP report. Preliminary Q1 figure came in at +0.1% q/q v estimates of -0.2% and above Q4 Final figure of -5.1%. While this, in itself, is a positive for the region - particularly considering this week's press rumors of Korea's GDP downgrade by IMF - the report's components painted a more tame picture. Trade component was net positive but predominantly on a sharper decline in imports, factory investment was still poor, and govt spending made up for private sector malaise. On the upside, construction sector had recovered and consumption component found traction with a positive print. Recall, this is also a Preliminary release, with the final figure coming in two months time. In the mean time, earnings report from Korea's chip sector took some shine out of the Kospi's symbolic luster. Hynix and Samsung results were mixed, as strength from the former was overshadowed by uncertainty from the latter. Hynix operating loss of KRW515B was shy of KRW559B estimates and sales of KRW1.31T beat consensus KRW1.21T, sending 000660.KS shares up 3% after the release. However, Samsung's caution in calling a bottom in near-term demand as well as uncertainty on the overall outlook dampened optimism on tech, with shares falling over 4% post-earnings. The company reported Q1 Operating profit KRW148B v loss KRW152Be and Sales of KRW18.6T v KRW17.5Te. Elsewhere in Korea, Kia motors surprised on the upside with Operating profit KRW88.9B v KRW69.9Be and Sales KRW3.5T v KRW3.45Te, sending its shares up 5% from early trading lows to unchanged levels. Overall, the Kospi oscillated around unchanged levels in opening hours but fell 1% on rising overall risk aversion in equities later in the day.

- In notable Nikkei names, NEC Electronics and Mizuho Financial were among the bigger gainers going into midday break. NEC was lifted by about 15% on press speculation of merger with Renesas taking place in the span of the coming year, and Mizuho pared prior session's losses with a 7% rally on media report of capital raising coming in the form of ¥500B in subordinated bonds. In other Tokyo financials, Nomura was up slightly on speculation of more cost-cutting through labor reduction, and in telecom, KDDI fell about 5% after the company withdrew next year's guidance, citing poor demand in mobile business. In macro developments, Nikkei press speculation on Japan's FSA considering curbs on FX margin trading helped JPY rise to multi-week highs against USD. Back in November, FSA had reportedly planned to require margin trading firms to place customer deposits in trust banks as early as this year, a report that had also supported sliding JPY at that time. Nikkei subsequently accelerated its decline, falling over 1.2% in the final hour.

- Elsewhere in Asia, China's PBOC adviser Fan reiterated his view stated yesterday, maintaining that China's economy has in fact bottomed and 7-8% FY GDP growth was achievable. However, he also noted that the recovery was likely to be slow and threat of deflation remained a concern. China's fx regulator SAFE was somewhat less upbeat overall, allowing for additional weakness in global economy.

- In Australia, materials and gold producers performed stronger relative to S&P/ASX 1% decline.
Woodside Petroleum was up 1.5% in opening moments after reporting Q1 sales falling just 1% y/y and output gaining 20% y/y, before a drop in crude prices took WPL.AU shares back to unchanged levels. Newcrest Mining rallied on Goldman upgrade to Buy and overall strength in precious metals benefiting from returning risk aversion, while Rio Tinto continued to trade higher in early going after rumored talks between company's chairman with BHP.

- In currencies, the strength in Japanese Yen was supplemented with steep losses in Sterling, making GBP/JPY the biggest loser of the session. British pound slumped across the board after London Telegraph suggested that UK may lose its AAA sovereign rating following the government's budget released earlier this week. Moodys and S&P analysts were said to be in the process of review of UK rating, as rating agency analysts were reportedly leery over projections of public sector borrowing.
GBP/JPY traded down 250 pips from session's best levels to 142, GBP/USD fell over 70 pips to 1.4630s, and EUR/GBP rose from 0.8920s to 0.8980s. Overall strength in JPY on FSA speculation took USD/JPY below 97.00 from 98.10 peak, while AUD/JPY fell from 70.10 to 0.69.

- Spot Gold is higher on the session, and trading above $900/oz. Today's gains for gold are coming as the Nikkei 225 equities index is declining. Additionally, gold is trading higher ahead of the update on the US bank stress tests supervisory results, which are expected to be disclosed to banks later on today. In other gold related news, China disclosed that its gold reserves totaled 1,054 metric tons, which is a rise of 454 tons since 2003. Following the disclosure from China, gold prices have moved above $910.50, which is the highest level since April 3. Crude oil prices are declining and have remained below $50/bbl for most of the Asian session. In terms of Asian oil demand, Nippon Oil, Japan's largest oil refiner, said that it planned to refine approximately 6% y/y less crude in May, due to weak domestic demand. In March, Nippon Oil said that it would lower its April crude processing by 23% y/y. Earlier during the week, Japan disclosed that in March its crude imports declined by 18.4% y/y and that compared with a prior decline of 64.7%. Japan is the world's second largest importer of crude.