Asian Market Update: Nikkei Extends Gains to 8-month Highs above 9,900; Sterling Deflates Further after Labor Defeat; RBNZ's Bollard Looks to Talk Down NZD Ahead of Meeting

- Asian equities are trading mixed in a quiet start to the week, with Tokyo and Korea trading firmer against the weakness seen in Hong Kong and Taiwan. Japanese equities are leading the gainers as Nikkei225 charged above 9,900 for its best intraday high since October 8th, and Korea's Kospi was off session highs but still slightly positive going into the final hour.
Taiwan's Taiex was off by 2% however, with financial and industrials taking the brunt of the selling. Elsewhere, Hong Kong was off by 0.8% on weakness in consumer goods, while S&P/ASX was closed in Sydney in observance of the Queen's Birthday. Looking ahead to the start of the new week in the States, front-month S&P's are down by 0.4% but off the session's worst levels, rising after Washington Post speculated that the Obama administration has moved away from its reluctance to let bigger banks repay TARP loans. The announcement coming as early as Monday is said to allow the loan returns by Goldman, JPMorgan, and American Express.

- On the Nikkei, financials and industrials were at the forefront of the rally, trading up about 2%. Among some of the more pronounced index winner, Elpida traded up as much as 8% in the wake of Friday announcement that Japan's government would invest in a new DRAM company based in Taiwan, and Komatsu rallied over 4% after being upgraded to overweight at Morgan Stanley. Hitachi Ltd. was also firmer by over 2% after it announced plans to boost sales in information and communications divisions by 8% from prior forecasts through 2012. Thin economic calendar was also primarily limited to data out of Japan. April current account came in at ¥630.5B V ¥850BE on total basis and ¥966.3B V ¥960BE on adjusted basis, however y/y exports decline slowed to -40.6% from March contraction of 46.5%. The good news continued in other 2nd tier Japan data, as May bankruptcies plummeted -6.7% - the lowest figure in 2 years - and Eco watchers survey outlook printed its best level since Sept of 2007 at 43.3. Despite these improvements, former Econ. minister Ota foreshadowed a "W"-shaped recovery in Japan, with the next year expected to remain "very weak".

- Saber-rattling by North Korea escalated to a new extreme after 2 imprisoned US journalists were said to be sentenced to 12 years of labor. President Obama, back from his trip overseas, announced he was reevaluating US approach for dealing with North Korea. Earlier this weekend, State Secretary Clinton said the US is considering putting North Korea back on its list of state-sponsors of terror. On the flip side however, South Korean press speculated that a test-fire of long-range intercontinental ballistic missile by the North expected in mid-June may not be imminent because the military has yet to install the missile-tracking radar system at the launch site.

- In currencies, Sterling remained the "weakest link" among the European majors, falling to June lows below 1.5930 after European Parliamentary election results revealed a pitiful showing by the Labor party, which came in third at 16% of the vote to Conservatives and independents 27% and 17% respectively. The pound remains particularly sensitive to geopolitical turmoil in the UK as PM Brown continues to dodge calls for his resignation from the ranks of his own party while shedding prominent cabinet members. On the economic front for cable, FT reported that the majority of economists expected UK contraction to be over in June. However, a separate press feature commented that business electricity in the UK has remained consistently below prior year's levels amid reduction of output capacity by businesses, and ex-BOE's Blanchflower noted that declines in UK house prices are far from over, with conditions leading to sub-1% CPI later this year. In other notable currency developments, RBNZ's Bollard said the monetary authorities were prepared to take more extreme measures to bring down interest rates and currency values in order to counter prematurely rising exchange rates. Having missed a meeting in May, RBNZ is the next central bank on tap for interest rate decision on June 10th.

- Crude oil prices are lower for the second consecutive session, as the commodity failed to close above $70/bbl on Friday's session. During Friday's NY session, oil prices declined by more than 0.40%, as the US dollar gained following the better than expected non-farm payrolls data. In terms of oil supplies related news, the Iraqi press reported that daily oil production from the country's Kirkuk region has risen by 16% to 670K bpd due to enhanced security and new wells. In OPEC commentary, Algeria's Oil Minister said that he expects oil prices to average $65-$70/barrel in 2009 and $80/bbl in 2010. Spot Gold is higher on today's session, as the metal and Euro are retracing Friday's losses. On Friday's NY session, gold prices declined to a 1-week low after the release of the US jobs report. With respect to physical demand for gold, the SPDR Gold Trust ETF disclosed that as of June 5 its holdings declined by 0.35 tons to 1,132 tons.