Asian Market Update: Australia Averts Technical Recession with Positive Q1 GDP, but Officials Downplay Recovery; USD Falls to Multi-Month lows vs AUD, GBP; Crude Contained after Weak API Draw

- Asian equity markets are trading on firmer footing after prior session's ambivalence despite the caution seen earlier in US equities. Nikkei225 entered the final hour up 0.4%, trading higher coming out of midday break while setting its sights on rising to fresh multi-month highs above 9,800. The rally in Tokyo is boosted by Japanese press speculation over the government removing its assessment of domestic economic conditions as "worsening". Korea's Kospi continued to underperform on a relative regional basis, trading right around unchanged levels on renewed geopolitical tremors from the North. Sydney's S&P/ASX was the brighter spot, outperforming most of Asian markets with 1.3% after better than expected Q1 GDP data. Hong Kong's Hang Seng once again led the way, rising 2.3% above 18,000. Looking ahead to Wednesday open in the US, front-month S&Ps traded around unchanged at $943 while benchmark Treasury yields declined to low 3.60%'s on subsiding fears of declining global demand for US debt. Additionally, the key afterhours event in the US saw the 4th installment of TALF loans rising to its highest level yet at $11.5B v the prior high of $10.6B seen in Round 3.

- Australia's Q1 GDP was the primary macro event on the session, magnified by the economy being on the bubble of technical definition of recession with negative print in Q4 and consensus forecasts for Q/Q figure at -0.2%. As we suggested in our preview, prior session's multi-year high in Q1 Current Account containing much higher than expected net imports GDP contribution did in fact tilt the risks for the figure to the upside. Q/Q and Y/Y GDP figures came in at +0.4%, helping the economy avert recessionary 2nd consecutive negative quarter. Despite the upside surprise, subsequent rhetoric from Australia's officials was notably subdued however, presumably in order to contain the rise in Australian Dollar so as to protect the nation's exporters. Treasury Secretary Henry admitted that rising AUD poses downside risk to GDP and exports going forward, while Treasurer Swan suggested that the economy is not "out of the woods" yet. Swan conceded that the economy would have entered the recession without the fiscal stimulus, but also noted there was no guarantee that renewed declines in quarterly performance will not be seen going forward.

- Turning to Korean peninsula, the North appeared to have amped up its threat with reported preparation of assembly of intercontinental ballistic missile with the range to reach the US. US officials continued to voice their distaste with North Korean display, as Dep State Secretary Steinberg suggested the North was on the "wrong path". In Korea's corporate sector, banks traded sharply lower as both Woori Finance and KB Financial were rumored to be considering an equity offer. South Korea's Finance Minister Yoon also offered an opinion on domestic conditions, noting that exports have worsened.
Recall the most recent May export data from South Korea showed an unexpected decline of 28% vs 19% in the prior month.

- In other notable macro developments, UK Nationwide Consumer Confidence data registered its best reading since November at expansionary 53 level, helping GBP reach multi-month highs against the dollar. In Japan, BOJ's Kamezaki forecasted recovery in domestic economy in the near term, but also noted that quantitative easing measures would only be exited when full stabilization took place. Furthermore, Kamezaki warned about high level of uncertainty demanding caution, with prices and employment deterioration presenting continued downside risks.

- In currencies, better than expected GDP data from Australia and solid consumer confidence figures helped AUD and GBP to multi-month highs against the greenback. AUD/USD rose to 0.8260s - best levels since late September - and Sterling advanced to 1.6650. The dollar was also on the defensive against the other European and commodity majors. EUR/USD briefly retested 1.4320's and USD/CHF fell to 1.06, while USD/CAD traded down to 1.08 and NZD remained above 0.6520. Japanese Yen was also weaker in step with moderate risk appetite falling to 96.00 against USD and 137.30's against EUR.

- The rise in crude oil that has until now echoed risk sentiment and dollar weakness has been tempered ahead of the $70 handle. Earlier, weekly API data also demonstrated lower demand from inventory draw as crude was down at -830K V -1.7ME and gasoline seen at +100K V -100KE. In Asian hours, crude mainly traded in $68.00-68.70 range. Spot gold saw a more pronounced bullish bias in concert with USD weakness but was also unable to breach intra-day highes above $988 seen in the US. Overall, market risk appetite may also be restrained ahead of the ADP jobs report in early US session, possibly weighing down on bolder commodity advance.