Asian Market Update: Another volatile Chinese equity session boosts the yen - Chinese equities have another volatile session: Chinese equities came under renewed selling pressure in early trade, with profit-taking seen with financial stocks and airlines. At one point in the morning session the A-shares were down by more than 3%. Many traders expected further selling on Chinese equities on Wednesday, because scores of investors were not able to sell off stocks in the Shanghai market on Tuesday. Since many A-shares dropped over 10% on Tuesday (the daily limit), many analysts believed that large groups of investors were unable to sell down their holdings and that they will likely do so on Wednesday. We did not see this scenario materialize yesterday, and after yesterday's rebound some traders took profits today amidst high valuations. - Chinese equities trade down over worries of further tightening amidst high valuations: Robust PMI therefore brings with it the likelihood of further monetary tightening. China CLSA Feb PMI 53.0 v 52.0 in Jan (a 7mnth high) - Yen gains from volatile Chinese equity session: Yen broke through key resistance levels to push to session highs against the EUR, GBP and USD. Traders reported that some Japanese players, including institutional investors, are waiting to sell USD/JPY on rallies, slowing the USD advance against the JPY. The consensus is that the current unwinding of carry trades is not sustainable, and analysts expect USD/JPY and EUR/JPY to resume their rallies once the technical correction in the equity markets has run its course. - Most Asian equities indices are unable to gain support from earlier gains in the US. The Nikkei 225 is lower for the 3rd consecutive session, trading down by more than 1.7%. Losses on the Nikkei are being driven by shares of exporters on fears of a significant US slowdown. Despite the sharp drop in the Nikkei, shares of Sanyo, Nikko Cordial and steel-makers are receiving buying interest. After closing during the prior session in the observance of a holiday, Taiwan's Taiex fell by more than 2%, tracking declines in other Asian markets. Declines on the Taiex were led by Hon Hai Precision, Taiwan's largest electronics company, which fell by more than 4%. Research firm Gartner revised downwards its 2007 chip sales forecast, putting pressure on semiconductor stocks. The Hang Seng has had 5 sessions of losses and is currently lower by more than 0.20%. The ASX 200 index is lower by more than 0.15% and losses have been limited by a rebound in shares of miner BHP. - Aussie business investment data showed that estimates of future investment were upgraded thanks to a surge in the mining sector: Aussie planned capex for next year came in ahead of estimates, suggesting that Aussie capacity constraints will become less worrying once the increase in capex starts feeding through. - Japanese bonds: JGB traders took profits after the Wall Street rebound. Strong demand was seen at a 10yr auction as traders bet that the Bank of Japan will not hike rates quickly. Factors outside of the JGB market, such as the drop in Japanese share prices, also supported the auction. - Commodities: Spot Gold is higher by more than 0.50% after last session's sharp declines. Gold is higher for the 4th session out of the last 5 ahead of UN sanctions on Iran. Crude oil is weaker in Asian trading following a rebound during the US session on lower than expected crude, gasoline and distillate inventories. Crude oil is currently holding just above the $61.50 level. Shanghai copper is little changed following yesterday's more than 2.5% decline.