Asian Market Update: RBA Remains on Hold at 3% but Sees Scope for Additional Easing to Address Receding Inflation; Treasury Sec Geithner Looks to Alleviate Concerns over US Budget Discipline and Inflation During China Trip

- Asian equity markets are notably more subdued than the bullish stampede down Wall St earlier in the US session as investor sentiment grew more cautious over the extent of the recent rally. Nikkei225 pared a firm open coming out of midday break but still traded up 0.8% on the session entering the final hour. Korea's Kospi gained just over 1% while S&P/ASX led the regional bourses with a 1.5% advance on the back of a better than expected housing and current account data. Looking ahead to Tuesday's US session, front-month S&Ps were marginally lower at $937.90 as government fixed income saw benchmark yields paring their gains from low 3.70%'s to mid 3.60's.

- Interest rate decision from Reserve Bank of Australia marked the key event on the session's economic docket as RBA left interest rates unchanged at 3.00%, in line with consensus forecasts, but also left the door open for additional easing down the line. In spite of the growing confidence over the rebound in global economy and early evidence of reignited commodity demand from China, a large reason for RBA caution is central bank's expectations of inflation continuing to moderate for the next 2 years. Nonetheless, any additional easing is likely to be a "one and done" mop-up given the RBA's view of some of the recent easing impact still remaining in the pipeline. In the mean time, other economic data from Australia showed fresh signs of resilience. Ahead of the RBA, April building approvals registered their best level on a Y/Y basis at -16.1% v -21.7%E while M/M figure came in above the expected 2.0% at 5.1%. Moreover, Q1 Current Account balance rose to its highest level since December of 2001 at -A$4.61B v -A$5.43BE, with net exports impact contributing 2.2% to GDP vs the expected 1.0%. Aussie GDP is on tap for release at 9:30pmET in tomorrow's session.

- Over in Japan, Finance Minister Yosano reiterated sentiment heard from administration spokesman Kawamura in the prior session, who saw a limited impact on domestic auto industry from the GM bankruptcy. Additionally, Yosano forecasted a better economic performance in Q2, leading to a full recovery by the spring of 2010. Among the notable Nikkei movers, Asahi Glass rose 5% after an upgrade to Buy from Goldman Sachs, while Nomura Real Estate fell 4% after the company signaled it would raise 64.1B yen with an equity offering. Overall, Nikkei's tech and consumer goods sectors replaced energy and materials at the forefront of the index rally, while financials and energy names took the backseat with moderate declines.

- Treasury Secretary Geithner continued to appeal to China's interests on his trip to the Far East, pledging that monetarily the Fed is committed to low inflation and will be swift in unwinding its rescue measures. On the fiscal side, Geithner stated that the US would cut its budget deficit as soon as evidence of a lasting recovery surfaced, and going forward would return to "living within its means". In regards to China's vast holdings of USD-based assets, Geithner stated that the administration remains committed to a strong currency, which he expected to preserve its status of being the deepest and most liquid reserve in the world. Geithner's visit is also proving to be timely in terms of resolving any issues that could threaten a trade war unfolding between US and China. Earlier in the session, WSJ reported that China Ministry of Commerce had opened an inquiry into steel dumping by Russian and US producers who allegedly sold flat-rolled steel used in electrical transformers under market value. Recall in recent weeks some of the US steel names have appealed to US Trade officials accusing China of dumping underpriced steel on US markets as well. On a related note, CISA reported that China's daily crude steel output reached 1.478M tons - the highest level since February - just as China's industry officials confirmed ongoing talks with miners about pricing concessions likely lasting all the way until the expiration of current contracts at the end of June.

- In currencies, USD mainly consolidated its retreat against the European and commodity names, trading within narrow bands for much of the session across the board. EUR/USD retreated to 1.4130's after intraday peak above 1.4240, Sterling briefly tested the downside of 1.64, while USD/CHF was contained below 1.0720. AUD advanced on better than expected housing data but fell back below 0.81 after RBA left the door open for more easing. USD/CAD dipped below 1.09 but found buying interest at intraday resistance turned support around 1.0890. Japanese Yen was generally firmer, with USD/JPY and EUR/JPY falling to session lows of 96.50 and 125.90 respectively.

- Crude oil prices are lower in Asia, but off of their worst levels. During the NY session, oil prices rose to a fresh 7-month high above $68/bbl on signs of improvement in various global manufacturing indicators. Despite the recent improvement in global data points, some remain cautious as to whether the current rally in oil prices is being driven by stronger demand.
Yesterday, the Libyan Oil Minister was quoted as saying that the gain in oil prices is due to speculation and not fundamentals. The US Energy Secretary Chu added that current prices do not reflect fundamentals, wile the IEA's chief Tanaka said that oil demand is not rising as fast as prices. In terms oil supplies related news, Russia's May oil production rose by 1% y/y, after rising by 1.3% y/y in April. Spot Gold is higher on the session, after prices declined in NY off of the $988.65 area, which was the highest level since Feb. In terms of investor demand for gold, the SPDR Gold Trust ETF increased its holdings by 15.3 metric tons to a new record of 1,134 tons. Also, the Bombay Bullion Association disclosed that India's May gold imports declined to 10-15 tons vs. 29 tons a year ago.