Asian Market Update: Shanghai reverses 3-day rally after Chalco misses 1H earnings, denies Rio Tinto-Chinalco partnership; Fed Chief Bernanke receives Obama reappointment nod

- Asian equities are once again tracking the latter session trends in the US markets, where early day's gains were reversed to turn in a marginal loss. With just under two hours left in Tokyo trading, Nikkei225, Kospi, and S&P/ASX are all down by about 0.5% after falling much lower initially in the session. Shanghai Composite remains in the spotlight in terms of volatility, reversing three consecutive winning sessions with a sharp correction, entering its midday break down 3.4%.
Ahead of the Tuesday open, front-month S&Ps are also down slightly by 0.1% after falling as much as 0.3%. US index futures were briefly lifted after WSJ broke the news that Fed Chairman Ben Bernanke would be reappointed when his term expires early next year. Ahead of Tuesday's announcement by President Obama, Senate Banking Committee Chairman Dodd said reappointment is "probably the right choice", but still called for a "comprehensive" confirmation hearing as well as an examination of the role of the Fed going forward, holding the body responsible for not shielding US consumers from the housing and financial crisis. Separately, US President Obama is expected to reiterate that the auto industry has been revived and business investment is near stability.

- Weaker than expected first half earnings from China's materials sector appeared to exacerbate the Shangai drop, as state-owned Chalco posted a loss of CNY3.5B v loss CNY1.5B expected. Moreover, Chalco had reportedly refuted speculation in Australian press regarding Chinalco partnership talks with Rio Tinto on bauxite and alumina deals. Chinese company noted it would remain open to contact with mining companies and possibly explore potential cooperation with Rio Tinto, but would not agree to similar terms as offered 6 months ago. In other China news, some of mainland brokerages warned regarding the sustainability of the 3-day run-up in equities considering the growing uncertainty of a V-shaped recovery. Conversely, Beijing State Council researcher said the overall August correction would be short-lived, reaffirming a solid economic recovery for China.

- Australia saw several of its larger firms post a mixed set of results. Fosters reported FY net profit of A$742M v A$714Me on sales of A$4.7B - in line with top line forecasts. Elsewhere, Woolworth's entered a JV partnership with Lowe's to develop a network of home improvement stores for consumers in Australia, also announcing a takeover offer of hardware distributor Danks by the new partnership. Shares of Woolworth gained 3.5% on the back of that report. In notable decliners, Suncorp fell over 3% after reporting FY net profit of A$348M below the expected A$613M. Australian press downgraded the probability of an El Nino event in 2009 after the Weather Bureau warned of a strong probability of the weather development just last week.

- In Japan, Toyota forecasted a monthly improvement in output on y/y basis to come as soon as November - the first such increase in about 16 months - expecting to produce as many as 14.5K vehicles/day. Japan Airlines refuted earlier press speculation it would spin off its international flights unit. Earlier, Nikkei reported the move would help the company lower its operational costs and reduce its workforce. Japan's Finance Minister Yosano warned that the promises of the opposition party are dangerous because of the severe fiscal state of the economy, but also noting it would be difficult to cap bond sales despite the rising public debt. Japan is expected to hold general election at the end of the month, with the ruling LDP coalition expected to be defeated by DPJ in a landslide.

- Elsewhere, South Korea's Knowledge Economy Minister said Samsung and LG may buy LCD panels from each other.
Separately, LG Display said it is considering a $4B investment in an LCD plant in mainland China, pending approval from the Board and the government. Elsewhere on the Kospi, Daewoo Engineering was said to be up for an acquisition bid by a number of suitors, including Blackstone Group, KKR and Permira Holdings. Over in New Zealand, central bank's 2-yr expectations improved to 2.3% from 2.2% prior, while Finance Minister English reiterated administration commitment to extend retail bank deposit guarantees from October 2010 through the end of 2011.

- In currencies, Japanese Yen reversed its heavy selling associated with risk appetite seen over the course of the prior session, rallying across the board as Asian bourses plummeted. USD/JPY fell below 94.00, GBP/JPY briefly tested the downside of 154.00, and EUR/JPY declined about 100 pips to 134.20. EUR/USD and GBP/USD mainly traded sideways around 1.43 and 1.64, but AUD was relatively weaker across the board in the wake of the refuted Rio Tinto - Chinalco partnership, falling below 0.8350 and 1.22 against USD and NZD.

- Crude prices are lower and have so far traded as low as $73.67/bbl. Oil prices are tracking the declines in Chinese equities and the commodity currencies. During the NY session, crude closed higher by more than 0.50% and above $74.00, but the $75.00/bbl level remained elusive. Upcoming event risks for oil prices include the later today releases of the US weekly API inventories data and US consumer confidence data. In OPEC news, Venezuela's Finance Minister was quoted as saying that OPEC will maintain its cuts until the economy recovers. During yesterday's European session, Iraq's Oil Minister noted that he saw no need for OPEC to raise its production at its Sept meeting, while adding that global oil stockpiles are still high. Spot Gold prices are higher by more than 0.30%, after the metal declined by more than $10/oz on the COMEX.