Asian Market Update: Regional Equities Mixed on Profit-Taking in Tokyo Financials, Weakness in Aussie Miners; USD Pares Gains as Commodities Recoup Early Losses

- Asian equity markets are trading mixed in a far less volatile session following yesterday's rout despite another triple-digit drop seen on the DJIA. With just about 90 minutes to go, Nikkei225 was up 0.5% on profit-taking in the financials sector coming on the heels of a record ¥923.1B share sale by Sumitomo Mitsui announced in the prior session. The rest of Asia is hovering in the red however, as falling metal prices drags Sydney's S&P/ASX to the front of the decline with a 1.7% overall drop, and geopolitical uncertainty continues to weigh on Korea's Kospi as it sheds another 0.5%. Hang Seng markets are also down 1% after leading the selloff yesterday, while Taiwan is bucking the regional trend once again with a marginal 0.1% advance. Ahead of the US open, front-month S&Ps are back in positive territory by 0.3%, with mild risk appetite tracked by a slight uptick in benchmark Treasury yields to 3.68%.

- Thin economic docket saw 2nd tier data from Australia, where Q1 dwelling starts fell 4% on Q/Q basis, down from -11.5% prior, and April Westpac Leading index registered its best level in a year, rising to 0.7% from 0.4% prior. Bank of Japan also echoed sentiment from prior session's rate decision in its monthly report, noting that the economy had slowed its decline, while also raising its assessment on exports and output conditions. Moreover, the BOJ suggested that while financial conditions remained severe, signs of improvement were progressively more evident. On a related note, Fitch stated that it planned to keep Japan's sovereign credit rating at AA-.

- In regional speakers, RBNZ Governor Bollard reiterated his view that the economy could see a return to growth by the year end. Both Bolland and NZ Finance Minister English did continue their verbal assault on the Kiwi strength, noting that high exchange rate is detrimental to exports - the sector viewed as pivotal to driving domestic economic recovery. In other notable speakers, China President continued to add emerging market texture to the ambivalence over the reserve status of the greenback evidenced by vague commentary from yesterday's BRIC summit. Hu stressed the need to diversify international monetary system, while also urging greater stability in reserve currency exchange rates. Chief Economist of Bureau of Stats Yao also said China is unlikely to experience inflation this year, as excess capacity and the threat of unemployment continue to weigh down domestic demand.

- Uncertainty over the timing of North Korea's test-fire of long-range missiles continued to weigh down the markets in the South. Japanese press commented that new intelligence pointed to an expected launch of two Taepo-dong rockets, and South Korean press remarked on train activity related to transport of missiles by the North. Japan's govt spokesman Kawamura acknowledged the rising likelihood of a launch but would not comment on whether Japan would attempt to intercept the rockets. Geopolitical uncertainty was also mentioned by South Korean Finance minister, who included belligerence by the North, along with rising currency and oil prices, in the list of risks that could derail the recently improved conditions.

- In the corporate sector in Japan, Mitsubishi Materials gained 2% on press speculation of profitability in copper business, and Kirin beverages rallied 5% on upgrade to Overweight at JPMorgan. Toyota was also initially firmer after reports that the company would consider building a Prius plant in California, as demand projections appeared to outweigh capacity supply. In other notable shares, Bidu price target was raised to $350 from $300 at Goldman Sachs, and Oz Minerals had completed its $1.39B transaction with China's Minmetals. In Sydney, deeper losses in metal prices seen in the US session weighed down miners, as both BHP and Fortescue Metals continued to trend lower.

- In currencies, European majors rose slightly amid profit-taking from prior session's broad-based risk aversion. EUR/USD approached 1.39 and GBP/USD traded as high as 1.6440's. The gains shrugged off cautious remarks by European officials as UK Chancellor Darling was speculated to recommend that UK banks secure additional capital in a Wednesday speech to financial industry, and ECB's Bonello said nothing was excluded while allowing for possibility of more rate cuts. In commodity FX, AUD bounce against USD was notably more contained on lower metal prices, while European majors rallied to multi-session highs against the Aussie. Japanese Yen traded sideways against the greenback in 97.00-97.70 range.

- At the time of writing, crude oil has moved off of its session lows, below $70/bbl, as the Nikkei 225 and the European major currencies pared their earlier losses. Crude oil opened the Asian session lower after API reported that weekly crude and gasoline inventories were higher than expected (API PETROLEUM INVENTORIES: CRUDE: -1.26M V -1.8ME; GASOLINE: +2.14M V +750KE). In Japan, for the week ended June 13, crude stocks rose to 16.9M kiloliters vs. the prior reading of 16.3M, while gasoline stocks held steady at 2.3M kiloliters. Later today, the US Department of Energy's weekly oil inventories data will be released. As markets continue to debate whether oil prices are being driven by demand, the CEO of Exxon Mobil was quoted as saying that inventories were "very high" and that demand has not increased recently. Also, the head of ConocoPhillips said that oil prices are trading ahead of fundamentals. Along with oil prices, Spot Gold has also rebounded off of its session lows on the weaker dollar. During yesterday's US session, NYU Economist Nouriel Roubini was quoted as saying that gold prices are likely at a top or overvalued due to deflation concerns. According to a technical analyst at a tier-1 British bank, gold is expected to remain under pressure while below $944/oz, which corresponds with the neckline of a head and shoulders top. In other commodities, Shanghai Copper is lower for the 5th consecutive session as it continues to track the weakness in the London copper contract.