Asian Market Update: Equities recover as Fed shows little haste in withdrawing accommodation and Shanghai selling decelerates; Aussie inflation perception, Kiwi PMI post multi-month highs

- Asian equity markets are trading on a much firmer footing after prior session's scare that saw mainland China nosedive over 4.5%. That selloff in Shanghai composite extended the correction of the recent 5-month rally to an overall 10% in just over a week, leading some analysts to forecast a more protracted regional correction. However, bullish sentiment resurfaced over the US session that saw the Fed leave its asset purchase program open-ended through the end of October.
The Fed statement allowed for further possibility of extended quantitative easing while deflecting concerns the US policymakers may be more aggressive in its exit plans. Gains of over 1% across the US indices carried over into Asia, as Nikkei225 rose 1% and the Kospi picked up 0.8%, while S&P/ASX, Taiex, and Hang Seng rallied over 1.5%. The start of a new day in Shanghai briefly sparked some worries, with the mainland index reversing its opening gains to trade down nearly 2%, sending regional bourses to session lows. However, buying interest did return as Shanghai composite pared those early losses to trade back above its closely monitored 50-day MA levels just below 3,100. Ahead of the Thursday US session, front-month S&Ps are also trading around session highs, up 0.3%.

- Regional economic data also saw some positive developments from New Zealand as well as Australia, helping the higher yielding Asia-pacific FX outperform its European counterparts in the overall rebound against the dollar. New Zealand July Business PMI registered its highest level since April of 2008 at 49.7 v 46.2 prior. The report also reversed early NZD selloff coming in the wake of a Moody's negative outlook on the Kiwi banking sector. The US rating agency cited the impact of weaker global economy on banks' asset quality while also noting further increase in unemployment adding to mortgage borrower stress. Over in Australia, August consumer inflation expectations rose to 3.5% - its highest level since last October - boosting Australian dollar to its best levels after two sessions of aggressive selling. Several notable speakers from China also issued risk oriented statements for local equity and commodity sectors. Citic Securities said the stock market will resume its move higher after a brief correction, forecasting more strength in 2H amid further improvement in corporate profits. Likewise, a Chinese industry minister expected strength in the auto sector, as it benefited from the government's stimulus measures.

- Among some of the bigger movers in Tokyo equities, Elpida, Mazda, and Mitsui OSK all outperformed the broader average, rising about 2% on internal factors. Elpida received an upgrade to Outperform at Mitsubishi UFJ, Mazda said it may increase its domestic production in the first half by about 10%, and Mitsui OSK was rumored to post breakeven results in its auto-shipping sector by the Japanese press. Outside the Nikkei, Telstra rallied after reporting strong FY numbers of Net A$4.1B v A$3.7Be, and Rev A$25.5B v A$25.5Be. In other regional telecom names, Singapore Telecommunications also topped estimates for Q1, posting Net S$945M v S$925Me, Rev S$3.85B v S$3.72Be.

- In currencies, European majors were firmer against the greenback, returning to pre-Fed decision levels across the board. EUR/USD rallied to 1.4230, GBP/USD rose above 1.65, and USD/CHF sold back down to 1.0750. AUD and NZD were particularly heavily bid, rising to 0.8360 and 0.6740 respectively. Japanese Yen bounced about 20 pips on both sides of 96.00 handle against the greenback and also ranged against the European majors, only trading weaker against the Asia-Pacific majors.

- Crude oil prices are higher, tracking the gains in the Nikkei 225 index and the EUR/USD currency pair. During the NY session, oil prices gained and closed above $70/bbl as the Federal Reserve noted signs of stabilization in the economy.
Additionally, oil prices were supported by the IEA's monthly report, in which the group raised its outlook for oil demand for both 2009 and 2010. The IEA sees 2009 global oil demand at 83.9M bpd, which is 190K bpd above its prior forecast. In 2010, the IEA expects global oil demand to be 85.3M bpd, which is a 70K bpd increase over its prior forecast. The IEA cited demand from China for its revised forecasts. In other oil news, the weekly Department of Energy inventories report showed that crude and gasoline stockpiles were both higher than expected (DOE CRUDE: +2.5M V +1ME; GASOLINE: -927K V -1.2ME). Spot Gold is higher on the session and trading in the $950/oz area, tracking oil prices. During the NY session, gold prices rose by more than $4/oz and closed at $952.50 on the COMEX, but later pared gains in the futures market following the FOMC statement. In other commodities trading, Shanghai copper prices have risen by more than 4% and have moved to the best levels since early October, supported by the earlier comments from the Fed.