Asian Market Update: RBA Minutes Reveal Bank Decision to Hold Swayed by Global Signs of Improvement, but Governor Stevens Tempers Optimism; USD Consolidates Losses Across the Board, while Sterling is Quiet Down Ahead of UK CPI; OPEC Chief Sees Low Demand After Nigerian Militants Encourage Crude Rally

- Asian equity markets reversed prior session's weakness after robust housing data and strong earnings report from Lowe's inspired a broad-based rally in US indices on Monday. In a catch-up session, the Nikkei was up 3% on the other side of midday break, while Kospi and S&P/ASX advanced over 2% to trade around session highs late in the day. In US index futures, front-month S&P's pared initial session weakness to trade up 0.3% in late Asian trading hours. Likewise, after initial gains, US fixed income was lower in step with overall risk-appetite theme in the session, as benchmark yields rose to 3.23%.

- Financials were at the forefront of the gainers across the region, with the sector rising over 4% in Tokyo and by over 2% in Sydney. Aussie energy names Woodside and Santos were also up by over 2% amid geopolitically driven crude rally stemming from trouble along Nigeria's export routes. Among the more notable Asian names, Korean steelmaker Posco rallied 4% after announcing it would raise KRW500B in short term notes in order to repay debt and boost working capital, while Japanese energy exploration company Inpex picked up 5% in line with the overall strength in energy as well as an upgrade to Buy from Goldman Sachs. NEC Technology was slated for potential underperformance - despite the gains seen in Nikkei electronics driven by weak JPY - after Moody's cut its credit ratings by 1 notch to Baa2, citing rising leverage and impaired profitability prospects.

- Thin economic calendar was highlighted by the May Meeting Minutes from the RBA, where Aussie central bank left interest rates unchanged at 3.00% but revealed considerations of additional easing. The minutes attributed the decision more to stabilizing sentiment than evidence of a rebound, noting that economic growth would not resume until year-end even though signs of decline in the pace of contraction did emerge. RBA further noted the jobless rate would remain high, while low GDP and sub-2% CPI would persist in months to come, with low levels of business investment spending tempering prospects of near-term recovery. Moreover, the signs of healthier domestic demand spurred by stimulus measures seen in March appeared to be more uncertain in April. Earlier in the session, RBA Governor Stevens also issued a more sobering assessment, noting that he was not particularly optimistic on economy returning to above-trend growth and would resort to rate changes if the markets needed a boost in confidence. Stevens was slightly more upbeat on signs of domestically driven economic pickup in China, but was also uncertain whether that trend could be sustained. Aussie Treasurer Swan was also somewhat wary on prospects for growth, forecasting a A$35B impact on the economy from declines in FY2010 trade balance.

- Elsewhere in Asia, Japan's Finance Minister Yosano commented on the surprising upward revision by Moody's of JGB rating, citing the positive impact of the government's stimulus weighing in the credit agency action. Recall there is some speculation in the markets that the Bank of Japan may also raise its assessment of the economy when it meets later on this week. In 2nd-tier economic data, Japan's final Industrial Production for the month of March was in line with preliminary estimate of 1.6%, while Capacity Utilization unexpectedly rose to +0.8% from initial -11.9% figure. In other regional macro developments, Korea's April Business Start-up/Failure ratio rose to 9-month high of 32.9 v 30.8 prior, even as the nation's Finance Ministry was cautious in forecasting a sustainable recovery in domestic markets. In China, evidence of overcapacity in domestic steel mills resurfaced with the Nikkei report profiling industry officials requesting that domestic mills lower output by 25-30%. Recall in April, China's crude steel output declined by 3.9% even as the overall industrial production rose by 7.3% on y/y basis. Additionally, Moody's reaffirmed its negative outlook on China's property developers amid uncertainty over refinancing risk and declining balance-sheet liquidity.

- In currencies, the dollar was still drifting lower against European and commodity majors on reemerging risk appetite, albeit at a far slower pace than during the US hours. EUR/USD rose as high as 1.3580 and USD/CHF traded down to 1.1130 in tight range, while AUD/USD and USD/CAD saw the greenback fall to 0.7687 and 1.1614 levels respectively. Action in UK currency could be particularly volatile over the course of European session as markets brace for April CPI figure. The current estimates point to Y/Y figure of 2.4% - the lowest level since January of 2008. Japanese Yen continued to pare its gains on market risk appetite, reaching 96.60 level against USD and rising above 131 against EUR.

- Crude oil is higher in Asia after rallying by more than 4% in NY trading. Crude is tracking the gains in global equities.
Additionally, oil prices rose in NY following reports that Nigerian rebel group MEND said that they damaged two pipelines in the country. In other supply related news, OPEC's President noted that demand levels were still low and that storage levels were still elevated, thus making him cautious on oil prices. The OPEC official added that the end of the global economic recession is "very far" off. In Iran, an unconfirmed report noted that the country planned to increase its oil production to over 5M bpd versus the current level of 3.6M bpd. On the demand side, China disclosed details of its stimulus plan for its petrochemical industry. As part of the plan, China is seeking to increase state reserves of refined oil products in a move to lower the oil inventories of local companies. Prior press reports have noted that China was looking to set aside part of its foreign exchange reserves for use in creating an oil fund. Spot Gold is marginally higher in Asia, after dropping more than $9.00 in NY trading. Gold prices declined in US trading to a 1-week low, as equities rose and the VIX volatility index retreated to a 8-month low. In terms of physical demand, some market players say that money flows into gold ETFs have been subdued, as evidenced by the fact that the SPDR Gold Trust ETF's holdings have not risen since May 13. Technically, one analyst is noting that a break of $945/oz is needed for gold to increase its upside momentum. During yesterday's session, some were noting resistance at $935 and $968/oz.