Asian Market Update: Record Low GDP in Japan, Poor Consumer Confidence in Australia Reignite Equity Fear as Asian Bourses Pare Initial Strength; USD, JPY Benefit from the Rise in Risk Aversion

- The key piece of economic data on today's session was the release of Japan's Q1 preliminary GDP figures (JAPAN Q1 PRELIM Q/Q GDP: -4.0% V -4.3%E; ANNUALIZED: -15.2% V -16.1%E). Although the data exceeded analysts estimates, Q1 GDP fell by a record amount and worsened from Q4 levels. The weakness in Japan's GDP was driven by a record drop in capital expenditures and exports. Additionally private sector consumption weighed on the GDP figures. Overall, Japan's GDP has contracted for four consecutive quarters. In terms of Japan's growth going forward, some analysts are expecting Q2 GDP to improve, amid recent signs of tentative stability in Japan's exports and production. Additionally, Japan's ¥15.4T stimulus plan (approximately 3% of annual GDP), which was announced in April could begin to impact the data going forward.

- In Australia, the May Westpac Consumer Confidence index declined against the prior reading to a 4-month low (Australia May Westpac Consumer Confidence: -4.3% v 8.3% prior; 4-month low). Additionally, Australia's Q1 wage cost index declined versus the prior readings, but was in line with market estimates (AUSTRALIA Q1 WAGE COST INDEX Q/Q: 0.8% V 0.8%E (Prior revised to 1.3% from 1.2%); Y/Y: 4.2% V 4.2%E (4.3% PRIOR)). Both pieces of Australian data reflect the deterioration of the country's job market. Additionally, according to Westpac the worsening of consumer confidence partially reflected the concerns by Australians regarding the country's budget. Also, individuals in Australia were disappointed by the RBA's decision to leave rates unchanged in May.

- In currencies, risk aversion has resurfaced in earnest following the release of Japan's record low GDP data. European and commodity majors dropped as USD and JPY gained firmly. EUR/USD retrenched the recent gains, falling below 1.36, while USD/CHF rallied above 1.11. Sterling was also moderately lower after failing to maintain the rally above 1.55 in the wake of worse than expected inflation data overnight. Australian Dollar sustained additional damage in addition to broad risk aversion from poor consumer confidence data, falling below 0.77 against USD and also dropping over one big figure against JPY to 73.50, and Kiwi dollar fell below 0.60 from intraday high around 0.6060. Japanese Yen emerged as the biggest gainer among the majors, with USD/JPY, EUR/JPY, and GBP/JPY trading close to session lows coming out of Tokyo midday break. USD/JPY declined below 95.50, EUR/JPY was two big-figures down from intra-day highs trading below 130, and GBP/JPY descended to 147.60 after trading above 149.50 in the US session.

- In equity markets, the Nikkei 225 is higher but off of its best levels. The gains in Tokyo are being led by resource-related companies. The Australian S&P ASX 200 is declining on losses in shares of building materials firm James Hardie and banks. In South Korea, the Kospi is marginally higher on advances in shares of Samsung Electronics. Hong Kong's Hang Seng is declining on losses in shares of property companies. In China, the Shanghai Composite is declining led by the weakness in shares of steel makers. Taiwan's Taiex is gaining on advances in shares of financials following a press report that the government may allow Chinese investors to take stakes in local state-run banks.

- In commodities, front-month crude traded lower tracking the overall cautious sentiment before gapping above $60 handle later in the day on internal fundamentals. Earlier, API Petroleum Inventories revealed wider than expected draw in crude and gasoline levels, with the former declining 4.47M barrels v 1.2M expected draw and the latter registering a 5.3M decline v 1.2M expected. Spot gold traded in narrow range despite the dollar rally, rising above $927.50 before paring those gains.