Asian Market Update: Rio Tinto Drops $19.5B Chinalco bid in Exchange for $5.8B in Equity JV with BHP, Announces $15.1B Rights Issue; AUD Rallies on Miner Tie-Up, GBP Continues to Slide on UK Labor Party Concerns

- At the time of writing, Asian equities are trading mixed ahead of the release of the US non-farms payrolls report. Equities in Australia are higher by more than 1% led by miners. Shares of Rio Tinto are higher and have gained more than 10%, while BHP is higher by more than 6%, as Rio Tinto terminated its $19.5B proposed agreement with China's Chinalco in favor of a Western Australia iron ore joint venture with BHP. Under the terms of the agreement with BHP, Rio Tinto will hold a 50% stake in the joint venture and receive a payment of $5.8B. In addition, Rio Tinto announced a $15.2B rights offering and the company expects to use the proceeds to pay down its debt.

- The Nikkei 225 is higher by more than 0.30% on gains in shares of resource companies, technology firms and banks. In South Korea, the Kospi is marginally higher on gains in shares of utilities and technology companies. China's Shanghai Composite is lower on the session on declines in shares of utilities and technology companies. In Hong Kong, the Hang Seng is declining, with the worst performing sectors being consumer services and telecommunications. Taiwan's Taiex is marginally lower on declines in shares of oil and gas companies.

- In currencies, commodity majors outgained the greenback and European FX in step with outperformance in Asian commodity markets. AUD/USD shook off the decline in the wake of the first trade deficit coming in the prior session, rising back above 0.80 handle, while NZD/USD retested intraday highs around 0.6360. From the longer-term perspective, Barclays research forecasted continued strength in commodity FX space, targeting 0.90 and 0.76 for the Aussie and Kiwi within the next 12 months. Canadian dollar was also firmer against the greenback earlier but has since consolidated those gains, trading just below 1.10. European majors continued to trade mixed as political uncertainty and rumors of UK PM Brown resignation weighed on the Sterling, sending GBP/USD toward session lows just around 1.61. Euro and Swissy remained buoyant however, tracking returning risk appetite in equities. EUR/USD bounced back above 1.42 while Swissy traded range-bound at 1.0660-1.07. Japanese Yen was slightly weaker against the greenback and lost substantial ground against the EUR, falling to 96.90 and 137.60 respectively.

- In commodities, crude trading tracked the sharp gains seen in the course of the US session, reclaiming the $69 level.
Earlier, Goldman Sachs raised its 12 month oil forecast by $20 to $90/bbl, helping crude prices outperform the more mild equity gains with a 5% overall session rally. As the most recent WSJ Commodities Section notes however, rising oil prices are mirrored by growing concerns over the downward pressure on consumer-driven recovery. The feature does note that prices need to rise well above $70 to register a significant impact. Gold traded slightly lower, sliding below $980 despite the moderate dollar decline, as muted volatility suggested sensitivity to Friday's jobs report.