Asian Market Update: Nikkei Rises to Fresh 8-month Highs Amid Broad Risk Appetite on Better China Industrial Output Rumors, Prospects of Another BOJ Economy Upgrade

- Asian equity markets are trading unanimously higher entering the final hour of trading in Tokyo, with broad-based gains led by basic materials and energy sectors. The Nikkei225 rose 1.7%, hitting a fresh eight-month highs coming out of midday break above 9,420. In Sydney, the S&P/ASX was up over 2% above 4,000 handle and approaching its best levels since mid-November. Korea's Kospi and the Hang Seng led the index gainers with above-2% rallies, while Taiwan's Taiex was seen bringing up the rear in the region for third consecutive session in the wake of a tier-1 investment bank recommendation for profit-taking in the island. Ahead of the Wednesday open in the States, front-month S&Ps were up 0.4% after the initial decline. Overnight, the US Supreme Court backed away from its scrutiny of the sale of Chrysler assets to Fiat. Elsewhere, BlackRock was reportedly getting closer to acquiring Barclay's BGI unit for $12-14B, up from the $11-13B rumored by FT sources on June 5th.

- A busy economic calendar with predominantly better than expected data appeared to be the focal point leading equity market gains across the board. China's Ming Pao Daily press leaked May industrial output figure to be +8.9%, much better than 7.7% expected to be officially released on June 11th. Veracity of the report also forecasting -1.4% May CPI in China was corroborated when the actual CPI figure was released at that level, below -1.3% expected but better than prior month's -1.5%. Positive Chinese data also helped investors in Japan shrug worse than expected Machine Orders data for April that saw a 6-month low figure of -5.4% V -0.6%E on M/M basis. Bank of Japan Governor Shirakawa noted the policy board will consider upgrading its assessment for the economy when it meets next week and also forecasted some recovery in the industrial sector for the 2nd quarter. In Tokyo corporate sector, Kobe Steel was said to have raised production levels since April - sentiment matched by Korean steelmaker Posco that saw returning demand. In the pharma sector, Daiichi Sankyo commented on the search of acquisition opportunity in Europe to the tune of as much as $5B. Toshiba Corp. forecasted a 41% cut in CAPEX, but also guided ¥130B positive free cash flow expected this year.

- Australia had a mixed set of data from consumer and housing sectors, but the Aussie markets appeared to respond far more favorably to the positive former due to the more recent timing of the report. Westpac Consumer Confidence rose 12.7% - the highest level in 22 years - after 4 out of 5 months of negative prints. April Home Loans did not live up to the upside surprise of Building Approvals reported last week, coming in at 0.9% v 1.5% expected. In notable equity developments, Oz Minerals said it would consider any proposals superior to Minmetals after rejecting $1.2B recapitalization proposal from RBC and RFC earlier this week.

- In other economic data, New Zealand Q1 Terms of Trade were above estimates of -3.8% at -3.0% but still registered the worst decline since 2002. Malaysia April industrial production contraction came in slower than in recent months, falling by -11.4% v -15.2%e. South Korea's May unemployment rate continued to inch higher, rising to 3.9%. The figure was also worse than 3.8% expected, with the economy said to have lost 219K jobs on a Y/Y basis. In notable US speakers, Fed's Stern signalled that the prospects of 2nd stimulus package were slim and the Fed had little to do in term of additional easing, forecasting the US economy to return to growth in the near term. Similar sentiment was also heard from Japan's Finance Ministry official ahead of this weekend's G8 summit, as focus is expected to revolve around exit strategies from "unconventional" liquidity steps.

- The greenback remained broadly offered across the board while risk appetite also weighed heavily on Japanese Yen.
EUR/USD bumped up against 1.41 and GBP/USD tested the upside of 1.6350, while JPY sold down to 97.70 vs USD and 137.60's vs EUR. In commodity FX crosses, AUD rallied above 0.8060 on the heels of better than expected consumer confidence, and USD/CAD dropped to near 1.10 levels as oil strengthened after API data.

- Crude oil prices are gaining in Asia for the second consecutive session and continuing to trade above $70/bbl. During NY trading, crude closed above $70/bbl, which was the highest settlement since early November. On today's session, oil prices are benefiting from the gains in Asian equities, the weaker dollar and the API inventories data, which showed that last week, US crude, gasoline and distillate inventories were all lower than market expectations, as crude oil stocks fell to the lowest level since March (API PETROLEUM INVENTORIES: CRUDE: -5.96M V -200KE; GASOLINE: +27K V +1.2ME; DISTILLATE: +19K V +1.1ME). The API petroleum figures are sometimes viewed as an indicator for the US Department of Energy's inventories figures, which are due later today. In China, an unconfirmed press report disclosed that the country's May industrial production rose more than expected and this is also seen as a bullish factor for oil. In other oil related news, the EIA raised its 2009 forecast for WTI crude by 13.5% to $58.70/bbl, and the group said that it expects the price of WTI crude oil to average $67/bbl in the second half of 2009. Spot Gold is gaining on dollar weakness, as market reevaluate the recent expectations regarding future interest rate hikes by the US Fed. In terms of the short-term technical outlook for gold, one trader said $935-$940/oz could provide support, while $965/oz is seen as resistance. Looking ahead, today's Fed Beige Book and the US monthly budget statement for May could be event risks for gold.