Asian Market Update: Taiwan Skyrockets on China MOU Prospects; IMF Rumored to Raise Emerging Asia GDP Estimates; FX Majors Range Ahead of Fed Decision

- Asian equity markets are staging a modest recovery after plummeting in the prior session, with strength in Japan attributed to profit-taking in yesterday's yen rally and overall regional optimism sparked by an upbeat IMF report.
Nikkei225 reversed the midday selloff coming out of lunch break, rising 0.7% to session highs with just under 2 hours to go in Tokyo trading. S&P/ASX and Kospi gains are relatively more subdued at 0.1%, however Taiwan's Taiex is the session's highflyer on streamlined mainland investment prospects. Ahead of the US open, front-month S&Ps are up 0.2%, while benchmark yields remain pressured below 3.70%.

- Taiwan equity markets are well ahead of region's advance as traders bid up the Taiex by as much as 5% on a set of positive developments for financial and tech sectors. Taiwan Cabinet Official Huang said the administration would send 13 cabinet members next week to visit banks, insurance companies and regulatory agencies - a move seen as accelerating the perceived delay of mainland cooperation under the memorandum of understanding (MOU) framework. Separately, comments from Apple forecasted that Taiwan chip companies have seen an increase in their orders for iPhone 3Gs chips, potentially impacting Q3 earnings of TSM, UMC, Advanced Semiconductor (2311.TT), Siliconware Precision (2325.TT) and Powertech (6239.TT).

- In regional economic data, Japan saw a mixed set of figures from trade and inflation-related sectors. May Merchandise Total Trade Balance came in at its highest level in a year at ¥299.8B V ¥210BE, even though both exports and imports weakened. Particularly notable was the export demand for crude, falling 63% vs the 11% prior monthly slide. Japan's May corporate service price index saw its largest decline on record, falling 3.0% compared to -2.7% expected and -2.4% prior. Japan is expected to report its inflation levels on consumption end on Thursday, with national inflation expected to fall at a multi-year record pace of -1.1%. Elsewhere, New Zealand Q2 Consumer Confidence as measured by Westpac was surprisingly strong, registering its best level since Q4 of 2007 at 106.0.

- In other notable macro developments, South Korea's MoneyToday quoted IMF Chief Economist Blanchard considering raising IMF 2009 and 2010 GDP estimates for most of Asia (ex India, China) by about 1%. The report is particularly timely in light of the IMF outlook update on tap for early July. In Japan, both BOJ and Cabinet office were upbeat about economic prospects over the near term. BOJ's Nakamura said the domestic economy was moving in line with BoJ's April outlook, expecting Q2 GDP to turn positive. Moreover, Nakamura suggested that policymakers begin to consider how to exit the nontraditional QE measures, even though some time could still pass for domestic economy to post a full-fledged recovery. Japan's Cabinet Office also forecasted a 1% expansion in country's real GDP in 2010 - the first time that the govt forecasted economic growth in the last 3 years.

- Both Japan and China saw officials responding to some political and trade-related turbulence. Japan's Fin Min Yosano was rumored to have received political donations from as many as 5 companies through a dummy corporation. Over in China, the Commerce Ministry addressed allegations about raw material treatment brought up by the EU and US with the WTO earlier in the US session. In retaliation, the ministry noted it would ask WTO to form a panel to conduct a probe into US poultry curbs as being potentially "discriminatory" and protectionist.

- In equity news, Japan's Mazda said it would increase its July-Sept production by 15%. In the pharma sector, FDA issued a warning letter to Takeda regarding a potentially misleading promotional materials for Velcade cancer drug. Elsewhere, Tokyo Steel gained 5% after Goldman Sachs initiated the company with a Buy rating, and Showa Shell rallied 7% on press speculation of partnership with Saudi state oil giant Saudi Aramco on solar power projects. In Australia, Commonwealth Bank of Australia said operating conditions remained challenging, reaffirming forecasted cut to second half dividend. James Hardie announced plans to more its domicile to Ireland on better corporate tax implications.

- In currencies, volatility was significantly lower amid consolidation from US session's greenback slide. EUR/USD pushed up against 1.41 handle, GBP/USD improved on US highs above 1.6475, and USD/CHF remained contained by 1.0650.
Commodity majors were also stronger, with AUD rising to 0.7960's, NZD/USD retesting 0.64 handle, and USD/CAD downside propped up by session support just above 1.1460. Japanese Yen was sharply weaker across the board on hints of risk appetite, rising above 95.50 vs USD and 134.80 vs EUR.

- Crude oil prices are lower in Asia, after rising by more than 2% in NY trading. Following the US equity close, API disclosed that weekly US crude and gasoline inventories were higher than expected (API PETROLEUM INVENTORIES: CRUDE: -70K V -1.2ME; GASOLINE: +3.7M V +1.3ME). The API figures come ahead of the Dept of Energy's weekly inventories data, which is scheduled to be released later on today. In Japan, the world's third largest oil importer, the country's May imports of crude oil declined by 63% y/y vs. the April decline of 11.1%. Additionally in the week ended June 20, Japanese crude inventories declined to 16.1M kiloliters vs. 16.9M in the prior week, while gasoline inventories were unchanged at 2.3M kiloliters. In terms of oil market commentary, the IMF's Chief Economist Blanchard said the recent rebound in oil prices appears to have been driven by speculation and the rally was unlikely to be sustained unless there is a recovery in demand. Spot Gold is lower on the session, after rising during the NY session. Today's US Federal Reserve interest rate decision and related commentary is seen as a key event risk for gold prices.

- In other commodities news, a report in the Chinese press disclosed that a iron ore deposit had been discovered in the country's northern province of Liaoning. According to the report, the iron ore deposit may contain more than 3B metric tons in reverses and is Asia's biggest iron ore deposit. A local official was quoted as saying that the iron ore deposit could be producing up to 5M tons by 2015. The discovery is seen as reducing China's reliance on iron ore imports, amid reports that the country's dependence on imported iron ore may rise to 70% in 2009. In May, China's iron ore imports rose by 38% y/y to 53.5M tons.