Equities sharply lower at open but pare losses by lunch, Hawkish FOMC minutes overnight

Asia Market Update: Equities sharply lower at open but pare losses by lunch; Hawkish FOMC Minutes overnight; AU jobs fall 1st time since Apr; JP exports fall; JP 20-yr JGB widest tail since 1987; China's ongoing issues.

General trend

- Overnight the FOMC minutes from July showed a hawkish stance, with members saying inflation risks could require more hikes, while two (non-voting) members favored holding policy.

- The FOMC stance helped push UST yields higher, the 10-yr up to 4.30% the highest since Oct 2022.

- Australia reported its first negative jobs report since April, and registered its largest fall in jobs since Dec 2022, along with the highest unemployment rate since April. Calls for an unchanged RBA rate grow louder (Westpac, CBA).

- AU bond yields remained higher despite weaker AU jobs data.

- Japan exports produced a negative print today, the first fall in 29 months. Within the components, exports to USA +13.5% y/y (largest value on record) and a similar +12.4% rise in EU exports compares starkly with another steep drop in exports to China, -13.4% y/y.

- Japan’s 20-year JGB auction today produced a bid-to-cover ratio of only 2.80x, which appears to be the lowest btc since Sep, 2022 and produced the widest tail since 1987 with highest yield of 1.375% since Jan 31. Meanwhile 30 yr JGB yield now up 5bps on the session.

- New Zealand 10-yr yields rising to 5.00% for the first time since 2011 did not help NZD/USD, trading at lows last seen Nov 202 of just above 59c.

- In other currencies the KRW/USD weakened to the lowest level since Nov 2022, while the India Central Bank said to be likely to be selling dollars via state-run banks to stave off further lows.

- USD/CNH nearly touched 7.35, the lowest CNH level since Nov 2022. The PBOC set a very strong fix of ~1,300 pips above the market price. China state-owned banks were said to be selling dollars to buy Yuan in offshore FX markets.

- USD/JPY also rose to 146.50, the highest since Nov 2022.

- In early trading Japan’s Nikkei touched its lowest level since June 2, while Korea’s Kospi fell to its lowest level in three months, but both indices recovered most of the losses by lunch.

- In Hong Kong China Construction Bank (939.HK) traded at a 52-week low, while Tencent fell 2.5% after overnight Q2 sales missed estimates, but recovered by lunch to be +1.5% on the day.

- Overall the Hang Seng Tech Index has fallen 11% from the July highs.

- In terms of China’s troubled real estate sector potentially turning into a financial sector contagion, China asked some funds to avoid net equity sales this week and troubled shadow bank Zhonghi (ZEG) plans a debt restructuring.

- US equity FUTs flat in Asia trading.

Looking ahead (Asian time zone)

- Fri JP CPI.

Holidays in Asia this week

- Thu Aug 17 Indonesia.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens -0.2% at 7,183.

- AUSTRALIA JULY EMPLOYMENT CHANGE: -14.6K V +15.0KE; UNEMPLOYMENT RATE: 3.7% V 3.6%E (first negative jobs report since Apr, and largest fall since Dec 2022).

- Australia Port Hedland July Iron Ore exports 43.7Mt v 51.9Mt M/M.

- New Zealand Q2 PPI Input Q/Q: -0.2% v 0.2% prior; Output Q/Q: 0.2% v 0.3% prior.

- RBNZ Gov Orr: Confident that inflation pressures are coming out now.

China/Hong Kong

- Shanghai Composite opens -0.4% at 3,137.

- Hang Seng opens -1.7% at 18,023.

- Tencent (700.HK) Reports Q2 (CNY) adj Net 37.5B v 36.3Be, Rev 149.2B v 152.0Be (overnight update).

- CHINA SAID TO BE ASKING SOME FUNDS TO AVOID NET EQUITY SALES THIS WEEK; SPECULATION IS GROWING THAT CHINA GOVT WILL ROLL OUT MORE STEPS TO PROVIDE SUPPORT.

- China Trust Co. Zhongzhi (ZEG) plans debt restructuring, hires KPMG to conduct audit of its balance sheet.

- Tianjin LGFV [Tianjin Infrastructure Construction & Investment Group] said to cut the lower end of pricing range for 150-day note issuance to 3.50% (prior: 4.00%).

- China major state-owned banks seen selling dollars to buy Yuan in offshore spot FX markets - traders.

- China PBOC adds CNY35B ($4.8B) of relending quota toward flood relief; Small companies hurt by flooding will receive credit (overnight update).

- China vows to meet annual economic targets; To boost investment and consumption - local radio (overnight update).

- WTO rejects China request to dismiss US complaint against 2018 tariffs against US exports.

- China PBOC sets Yuan reference rate: 7.2076 v 7.1968 prior.

- China PBOC Open Market Operation (OMO): Sells CNY168B in 7-day reverse repo; Net injects CNY163B v net injects CNY279B prior.

Japan

- Nikkei 225 opens -0.5% at 31,621.

- JAPAN JULY TRADE BALANCE: -¥78.7B V ¥47.9BE.

- Japan Jun Core Machine Orders M/M: 2.7% v 3.5%e; Y/Y: -5.8% v -5.8%e.

- Japan Jun Tertiary Industry Index M/M: -0.4% v-0.2%e.

- Japan releases weekly flows data [period ended Aug 11th]: Japan buying of foreign bonds -¥334.6B v +¥1119.5B prior; Foreign buying of Japan stocks: +¥227.2B v -¥59.6B prior.

- Japan to enter talks with Mubadala investment Co. on chip investment.

- JAPAN SELLS ¥1.2T IN 20-YEAR BONDS; AVG YIELD: 1.3220% V 1.0700% PRIOR; BID-TO-COVER: 2.80X V 3.38 PRIOR (widest tail since 1987).

- Bank of Japan (BOJ) offers to buy 5-10 year JGBs at fixed rate of 100bps; Opens window to buy unlimited amount of 10-year JGBs at 1.00%.

South Korea

- Kospi opens -0.5% at 2,512.

- South Korea July Import Price Index M/M: 0.4% v -3.4% prior; Y/Y: -13.5% v -15.7% prior.

- South Korea FSC Vice Chair Kim: No worry about recent stock market drop.

- South Korea Fin Min: To prepare measures to attract more tourists from China.

Other Asia

- India Central Bank said to be likely to be selling dollars via state-run banks.

- Singapore July Non-oil Domestic Exports M/M: -3.4% v 1.3%e; Y/Y: -20.2% v -14.3%e.

- Regarding Move Forward party's [May election winner] ombudsman petition vote on PM: Thailand Court declines to review parliamentary decision that blocks Move Forward Party Leader Pita's PM bid.

- Indonesia President Jokowi: Target 2024 budget deficit of IDR522.8T; fiscal and economic policies must be able to address global challenges - State of Nation speech.

North America

- (US) MBA Mortgage Applications w/e Aug 11th: -0.8% v -3.1% prior.

- (US) JULY HOUSING STARTS: 1.452M V 1.450ME; BUILDING PERMITS: 1.442M V 1.463ME.

- (US) JULY INDUSTRIAL PRODUCTION M/M: 1.0% V 0.3%E; CAPACITY UTILIZATION: 79.3% V 79.1%E.

- (US) Atlanta Fed GDPNow: Raises Q3 GDP forecast from 5.0% to 5.8%.

- (US) FOMC July Minutes: Most members said inflation risks could require more hikes; Two officials favored holding policy at July meeting.

Europe

- EURO ZONE Q2 PRELIMINARY GDP Q/Q: 0.3% V 0.3%E; Y/Y: 0.6% V 0.6%E.

- EURO ZONE JUN INDUSTRIAL PRODUCTION M/M: 0.5% V 0.0%E; Y/Y: -1.2% V -4.0%E.

- UK JULY CPI M/M: -0.4% V -0.5%E; Y/Y: 6.8% V 6.7%E (slowest annual pace since Feb 2022).

- UK JULY PPI INPUT M/M: -0.4% V 0.0%E; Y/Y: -3.3% V -2.8%E.

- UK Chancellor of the Exchequer (Fin Min) Hunt: While prices are slowing, we are not at the finish line.

- UK Jun ONS House Price Index Y/Y: 1.7% v 1.8% prior.

- Germany's coalition government said to have agreed to pass a package of tax policy measures by end of August - financial press.

- German Chancellor Scholz: Germany economy going through challenging times.

Levels as of 01:20 ET

- Nikkei 225 -0.6%; ASX 200 -0.6%; Hang Seng -0.7%; Shanghai Composite -0.2%; Kospi -0.4%.

- Equity S&P500 Futures flat; Nasdaq100 flat, Dax -0.7%; FTSE100 -0.4%.

- EUR 1.0861-1.0891 ; JPY 146.21-146.56 ; AUD 0.6365-0.6429; NZD 0.5903-0.5946.

- Gold -0.3% at $1,923/oz; Crude Oil -0.3% $79.16/brl; Copper -0.1% at $3.6235/lb.