Asian Market Update: Commodity FX Lifted as RBNZ Stands Pat at 2.50% and Aussie Job Creation Tops Estimates; China Exports Fall at New Record Pace

- Asian equity markets continue to shrug the cautious ambivalence on Wall St., defying the decline in US indices on Wednesday for a mild rally across the region. For the second consecutive session, a generous serving of bullish economic data helped stroke investor optimism, with Tokyo markets digesting an upward revision to Q1 GDP and Australia received a boost from better than expected jobs report. Nikkei225 motored to fresh 8-month highs, taking out psychological 10,000 level, while S&P/ASX hit its best levels in 7-month above 4,040 with a 0.6% rally. Korea's Kospi led the rally with a near 1% advance and only the New Zealand exchange declined 0.8% after RBNZ left its cash rate unchanged at 2.50%.

- Japan released its revised final Q1 GDP above the preliminary mark, as Q/Q fell -3.8% vs the initial -4.0% estimate. On an annualized basis, growth fell -14.2% v -15.0% prior, with much of the improvement coming from the CapEx component rising to -8.9% from -10.4% and terms of trade breakdown remaining unchanged. Recall the Bank of Japan is rumored to once again upwardly revise its economic conditions assessment at their next meeting on June 15th. Among notable Nikkei names, steelmakers JFE, Nippon Steel and Kobe were broadly higher after Japanese press speculated on the companies restarting some of their reduced capacity operation. Toshiba was also one of the bigger session winners, picking up 5% on an upgrade at Nomura.

- Australia's jobs report painted a mixed picture but was received positively by currency markets, helping AUD recover toward intra-day highs above 0.81. May employment change was down -1.7K, well below 30K expected, and unemployment rate came in line at 5.7% after an unexpected drop to 5.4% seen in April. However, most of the gains were seen in part-time sector as the economy gained 24.2K part-time jobs and lost 26.2K full time jobs. Speaking in the wake of the report, Australia's Deputy Prime Minister remarked that the labor data suggests a rising unemployment trend - sentiment also expressed by the Prime Minister and Treasurer in the prior session. In Aussie equities, basic materials outperformed all other sectors, with the rally fuelled by commodity strength in US markets notably arriving without the help of the US dollar decline. Entering the final hour, BHP rose over 1.5%, Rio Tinto rallied more than 3.5%, and Fortescue advanced a whopping 15% even though the company stated it was unaware of the reason for the large move.

- A pair of Asian central banks posted unchanged interest rate decisions in the session, further relieving market concerns over economic deteriorating requiring additional easing measures. RBNZ left its cash rate on hold at 2.50%, expressing continued discomfort with the strength of the Kiwi impeding economic recovery. RBNZ symbolically left the door open for another cut, but also forecasted return to growth from a protracted recession coming by the end of the year amid signs of improvement in financial conditions. Moreover, although RBNZ did not anticipate a sharp rebound in employment and housing, the central bank also did not foresee the need for unconventional policy measures experienced in US, UK, and Japan, further helping the Kiwi dollar advance after the announcement. In Korea, BOK left rates unchanged at 2.00% as expected and forecasted a near end to domestic economic downturn. BOK did suggest that rates would remain low for some time, allowing for little possibility over returning consumer driven inflation, while remaining somewhat concerned about domestic credit conditions.

- In other notable economic figures released during the session but largely overshadowed by the other data, China's May trade balance tempered optimism over inflationary medium-term trend. Exports dropped -26.4% on y/y basis - the biggest drop in at least 6 years - and were below the expected -23% decline, while imports fell -25.2% v -22%e. Overall trade surplus rose to $13.4B from $13.1B prior, but was below the expected $14.9B. On the bright side, China's demand for commodities did appear to improve on a monthly basis, as crude oil imports rose 5.3% and copper imports rose 5.7%, while iron ore fell 6.2% but rose 37% y/y.

- In currencies, commodity FX outperformed European majors as USD retreated from the gains made during the US session across the board. AUD/USD retested the upside of 0.81 handle, NZD/USD bounced over 100 pips above 0.6370 following the RBNZ rate hold, and USD/CAD fell back below 1.1040 after rising above 1.1160 in US hours. European majors returned on the offensive, as EUR/USD bumped against intraday support of 1.4060 for a one big figure rally off the lows, and Sterling reclaimed 1.64 handle after falling as low as 1.6240 in US session. Despite the gains in equities, Japanese Yen also traded in step with USD weakness, as USD/JPY fell back below 98.00 and EUR/JPY ranged between 137.10 and 137.70.

- Crude oil is higher in Asia for the 3rd consecutive session, as the commodity has traded above $72/bbl for the first time since early November. Today's oil price gains are coming amid signs of improving Asian demand. Earlier today, China, the world's second largest oil importer, disclosed that its May crude oil imports rose by 5.3% m/m to 17.1M tons. Additionally, one of China's largest refiners, PetroChina said that it believed China may import more than 50% of its crude oil needs in 2009. During the US session, oil prices rose by more than 1.5% to the highest settlement price since mid October, as US weekly oil inventories were lower than expected (DOE CRUDE: -4.38M V -200KE; GASOLINE: -1.55M V +1.2ME; DISTILLATE: -318K V +1.1ME). As oil prices have moved to levels not seen since 2008, there are signs of concern regarding the higher prices among oil producing countries. During yesterday's session, Kuwait's Oil Minister was quoted as saying that OPEC might consider raising output, if oil reaches $100/bbl as he believes that prices are not reacting to fundamentals. Additionally, Iran said that it may boost production if oil prices rise and inventories decline, while Russia's Deputy PM was quoted as saying that he does not expect Russia's oil production to decline for the next 3 years. Spot Gold is higher on today's session, and tracking the gains in the commodities currencies against the US dollar. Overall, gold prices are respecting the prior session's support and resistance levels, which were $935-$940/oz and $965/oz respectively.