Asian Market Update: China Trade Data Falls Short of Estimates as Asian Bourses Follow US Equity Slide; Bank of Korea Stands Pat at 2.00%, Signals Easy Stance Amid Falling Inflation

- After starting the week on more ambivalent footing, Asian equity markets are looking decidedly more bearish, with selling sentiment carried over from Monday's US session. Nikkei225 traded at session lows entering midday break down 1.3%, Korea's Kospi was off by 1.4% at session worst levels, while S&P/ASX traded down 1.7% as the region's biggest laggard.
Front-month S&P futures implied further weakness in the US on Tuesday, falling 0.4% to 905.20. Moreover, benchmark yields rapidly falling back to 3.15% suggested the possibility of longer-lasting risk averse environment.

- The key economic event on the session was the early release of China's April monthly trade data which was not expected before tomorrow. Coming on the heels of a better than expected report in March, Chinese trade results were particularly disappointing as exports fell by -22.6% v -15.4%E, imports declined -23.0% v -22.4%E, and the overall surplus was well short of the forecasted $20.3B surplus at $13.14B. Speaking after the release of trade numbers, China's Commerce Minister noted that outlook for the export sector was not optimistic as Chinese companies still encountered weak overseas demand.

- Bank of Korea left its 7-day repo rate unchanged at 2.00% in line with broad consensus forecasts but signaled a protracted easing bias on expectations of a sharp drop-off in inflation over the coming months. Korea's economy has recently exhibited more consistent signs of recovery, prompting central bankers to note that economic downturn has "clearly eased" and export growth was normalizing. However, BOK was also cautious with the outlook of mild positive growth in coming months, noting that consumer demand was not expected to improve soon and credit risk concerns were likely to persist.

- Earlier, better than expected housing figures from Australia and New Zealand, as well as surprising strength from UK retail sector, could not slow the equity selloff or the onset of risk aversion in the session seen in currencies. New Zealand April REINZ House Sales registered a second consecutive increase after 21 months of contractions at 39.6%, while Australia's March Home Loans topped 4.5% estimates with 2009-best 4.9% increase. In UK, BRC Retail Sales Monitor same store sales rose 4.6% after 1.2% contraction in March, posting the strongest increase since April of 2006.

- Speaking at the Atlanta Fed, Chairman Bernanke delivered a positive review of last week's stress test findings, noting that many banks under review are well ahead of schedule in raising private capital with holdings "well in excess" of minimum requirements. Additionally, he noted gradual improvement in the overall financial system with hopes of banks returning to health within 2-3 years. On topics of inflation and the dollar, Fed chief suggested that policy makers would look for 1.5-2.0% target range for inflation and do away with accommodative stance in a "timely fashion", while also maintaining steadfast commitment to USD as the world's main reserve currency.

- In notable Nikkei names, industrials were particularly weak on earnings from Yamaha and speculation of shortfall for Mazda. The former fell over 4% after posting a Q1 net loss of ¥15.8B v Loss ¥17.0Be even after guiding better than expected FY09/10 results, while the latter declined 5% on media rumors of operating loss between ¥25B to ¥100B v loss ¥41.9Be. Mitsui Chemical shares were also weaker by 9% within the industrials sector selloff after Japanese press rumored the company would reduce its workforce by 10%. Japan Airlines FY09 results were largely in line with estimates but forecasts for the current year saw a wider than expected loss in earnings. Elsewhere, Daiichi Sankyo declined 3.3% to trade at session lows after FY09 earnings, with net loss coming in at ¥335.8B v ¥320.5Be and forecasts of current year profits were well below expectations.

- In currencies, USD consolidated its gains across the board while JPY traded at best levels against the greenback since late April. EUR/USD decline slowed at intraday lows of 1.3560, GBP/USD bottomed just above 1.5070, and USD/CHF retreated from 1.11 handle. In commodity FX, AUD ranged between 0.7560 and 0.7610, while USD/CAD topped out just above 1.1670. USD/JPY tested US session support at 97.30, and EUR/JPY traded below 131.70 while maintaining session resistance of 132.80.

- Crude oil is lower and trading above $58.00/bbl in Asia, after declining slightly during the US session. Oil prices are tracking the weakness being seen in Japanese equities. Spot Gold is lower, after dropping during the NY session by more than $1.