Asian Market Update: Equities Track US Markets Decline on Valuation, World Bank Downgrade Concerns; Japanese Yen Hits Multi-Week Highs on Broad Risk Aversion

- Asian equity markets are following the 3%+ drops in S&P and the Nasdaq with a unanimous slide of comparable magnitude across the major regional bourses. Nikkei225 and is off by 3.1% at midday break at 9,523, led by materials, industrials, and energy names. Predictably, commodity-heavy S&P/ASX is also down by over 3% driven by the slide in the same three sectors. Hang Seng is the biggest loser on the session, down 3.3%, while Korea's Kospi is off by similarly large 2.8% margin. Ahead of the US open, front-month S&Ps maintain a bearish tone with a slight selling bias, while benchmark yields appear to be poised to relieve the Fed of the funding conditions stress by declining further below 3.70%.

- Global demand-oriented concerns over the commodity space was magnified by the latest projections from Australia's Bureau of Agricultural and Resource Economics (ABARE). The agency has cut its commodity exports projections for Australia by 0.8% to decline 18% y/y in FY09/10. Specifically, metal exports are expected to fall 12% and gold exports are expected to rise only 3% from this year's 61% projected growth. Also within the regional trade-oriented news, Shanghai Securities News speculated that Chinese reliance on imported iron ore would rise from 50% to 70% in 2009. China's trade policies will also receive an added layer of scrutiny, with sources from United States Trade Representative office expecting a major news conference on Tuesday afternoon to address US-China concerns. Recently, China has added a "Buy Chinese" clause to its stimulus, prompting criticism from US and European officials.

- Among notable speakers, New Zealand Agriculture Minister Carter says that domestic dairy farmers are well placed to face a drop in income this year and do not need any gov't backed aid. Currency strength has weighed heavily on the Kiwi export sector, with repeated attempts by the administration to talk down NZD. That sentiment reverberated among nation's economists, with a survey pointing to New Zealand facing a deeper contraction this year than previously expected. Mean estimates puts the current fiscal year decline at -1.6%, much lower than the -0.6% contraction forecasted just three months ago.

- In equity news, Elpida Memory was rumored to be on deck to receive ¥30B yen in govt funds after refuting similar speculation from the media last week. In commodities, BHP was upgraded to Buy from Hold at Citi with a target share price raised to A$39.40 from A$36.00. Another Aussie miner Fortescue said it had entered into cooperation pact with Aquila Resources' West Pilbara iron ore project. The company was also mentioned by miner merger-hungry China, who insisted it was not interested in buying the company. Korea's biggest steelmaker Posco said it was considering raising steel prices by nearly 10% due to a rise in material costs. In Japanese auto sector, Toyota said its outlook for the US is increasingly unclear even though it did forecast a shift in demand toward hybrid models set to benefit from the recently approved by Congress "cash for clunkers" provision, reflecting on its Prius demand being "beyond expectations." Additionally, Isuzu said it was considering supplying additional trucks to GM for sale in Latin America. Additionally, Nissan said it expected to be one of the recipients of loans provided by the US Energy Dept

- In currencies, the greenback and the Japanese Yen have traded firmly higher in today's session as risk appetite dependent commodity majors took a hit. AUD/USD continued to target 0.78 handle, NZD/USD traded below 0.6270, and USD/CAD extended its oil-slide infused rally above 1.1550. In European majors, EUR and GBP were weaker against the greenback in Asian hours, reaching intraday lows around 1.3835 and 1.6270. Meanwhile, the outperforming Japanese Yen was at multi-week highs across the board, reaching 95.10 vs USD, 131.60 vs EUR, as well as June lows against AUD and NZD at 74.35 and 59.55 respectively.

- At the time of writing, crude oil prices are lower by more than 1% and trading below $67/bbl, after declining by more than 3% in NY trading. Crude oil prices are being weighed down by a combination of factors which include the stronger dollar, weaker global equities prices and the World Bank's reduction to its 2009 global GDP forecast. In terms of the outlook for oil prices some market players are looking for a daily close below $66/bbl to confirm a break of the uptrend established in March. Spot Gold is lower by more than 0.40%, after hitting session lows earlier around $913/oz, which was the lowest level since May 12. Gold is declining on the stronger dollar and reports of fund selling. The SPDR Gold Trust ETF disclosed that its holdings declined by 0.90 tons to 1,131 tons as of June 22, which was the first decline since June 5. A key catalyst for gold remains this week's Federal Reserve meeting, in which policy makers may shed light on the outlook for the US economy and their quantitative easing policy. In other metals trading, the stronger dollar, weaker global economic outlook and concerns about future Chinese demand are continuing to weigh on copper prices. On today's session, Shanghai Copper futures declined to the lowest level since May 27.