Markets take 'hawkish' BoJ comments in stride, Asian equities rebound on US lead

Asia market update: Markets take 'hawkish' BOJ comments in stride; Asian equities rebound on US lead; Focus on ECB rates tonight.

General trend

- US equity markets initially sold off in the wake of the August CPI reading and last night’s Presidential debate. Fed probability for a Sept 50bps cut collapsed post-CPI to 15.0% v 34.0% prior.

- Nvidia rebounded 8% in US trading, leading to copy-cat bounces for Japan and Korea chipmakers. Advantest +8%, Tokyo Electron +6%, Hynix +8%.

- After leading Asian equities down yesterday, today the Nikkei led out the gate, +3.5% within the opening hour, coming off the highs a bit as the session continued. Automakers and exporters in Japan up on a weaker Yen following the exporter weakness yesterday when the Yen/USD retested highs not seen since last December.

- Australian Resources index managed +0.5% despite being BHP ex-div day, with the main ASX up +0.7%.

- BOJ Board member Tamura today effectively outed himself as a hawk at the BOJ. Tamura said that markets' expectation of rate hikes are too slow. His further statements that he views the neutral rate of "at least 1.00%", and needing to raise rate to at least 1% by end of Outlook period suggests that it was him in the July BOJ Summary of Opinions who promoted a likely 1% neutral rate. Japan yield curve flattened slightly post-comments; JP 2 yr yield +2.2bps, 10 yr yield up only 1.4bps.

- Japan BSI large industry and manufacturing for Q3 came in much higher than prior, however, August PPI figures disappointed, with y/y figures the lowest since May and the m/m turning negative. [BSI index seen as correlated with BOJ Tankan survey, which is due on Oct 1st].

- Asia Lithium stocks extended gains as CATL confirms to reduce production of lithium carbonate in Yichun, China.

- Some wires reported that China asked domestic carmakers to keep EV technology at home [time frame uncertain], a move that if true could further inflame the current EU-Canada-US EV trade wars against China.

- China bond yields keep falling; 10-yrs down -7bps to 2.06%, well below when the PBOC last verbally intervened and warning some market participants to not offer bonds in order to keep rates propped back towards their 2.50% preferred level.

- The takeover battle for Japanese retailer Seven & I heated up with Couche-Tard reportedly discussing a higher bid, while Seven & I retained Nomura to advise. Seven & I stock +4%.

- Boeing CEO warned ahead of a pivotal union vote later today that a strike would "put our shared recovery in jeopardy".

- China to host defense industry Xiangshan Forum in Beijing between Sept 12-14th.

- Will we see PBOC cut the rate the 14-day Reverse Repo on Friday? [Ahead of CN holidays next week, as per last year at this time).

- US equity FUTs +0.1% to +0.2% during the Asia session.

Looking ahead (Asian time zone)

- Thu Sept 12th (Thu eve ECB rate decision; US PPI).

- Fri Sept 13th.

- Sat Sept 14th China Aug ‘data dump’ (Ind. Production, Retail Sales, etc.).

Holidays in Asia this week

- N/A.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens -0.1% at 7,981.

- Australia Sept Consumer Inflation Expectation Survey: 4.4% v 4.5% prior.

- New Zealand Aug Food Prices M/M: 0.2% v 0.4% prior.

- New Zealand Aug Total Card Spending M/M: -0.2% v 0.7% prior.

- ANZ: The Light Traffic Index (LTI) rose 0.6% m/m in August, while the Heavy Traffic Index (HTI) fell 0.7%. Heavy traffic has fallen by 3.3% y/y – update.

- New Zealand sells total NZ$500M vs. NZ$500M indicated in 2029, 2035 and 2037 bonds.

China/Hong Kong

- Hang Seng opens +0.4% at 17,177; Shanghai Composite opens flat at 2,722.

- China said to ask domestic carmakers to keep EV technology at home [timeframe uncertain] - US financial press.

- Saudi crude oil supply to China said to rise to 46M bbls in Oct vs 43M bbls in Sept - financial press, citing sources.

- China State Council issues views on insurance industry development, calls for resolving risks; To support eligible foreign insurance institutions to set up legal entities and branches in China [overnight update].

- China PBOC sets Yuan reference rate: 7.1214 v 7.1182 prior (weakest since Aug 29th).

- China PBOC Open Market Operation (OMO): Sells CNY161B in 7-day reverse repos; Net injects CNY98B v net injects CNY209B prior.

Japan

- Nikkei 225 opens +1.6% at 36,185.

- Japan Aug PPI (domestic CGPI) M/M: -0.2% v 0.0%e; Y/Y: 2.5% v 2.8%e (Lowest y/y since May).

- Japan Q3 BSI large all industry Q/Q: 5.1% V 0.4 prior.

- Japan Aug Tokyo Avg Office Vacancies: 4.8% v 5.0% prior.

- Japan releases weekly flows data [period ended Sept 6th]: Foreign buying of Japan equities: -¥902.3B v -¥824.4B prior; Japan buying of foreign bonds: -¥222.6B v +¥1.64T prior.

- Seven & i: Couche-Tard said to discuss higher bid; Parent Co of Seven & i said to tap Nomura to advise on takeover battle with Couche-Tard - FT.

- Latest Japanese corporate polling for LDP Leadership shows ~24% naming Ishiba as the most desirable candidate for companies; 22% for Economic Security Minister Takaichi and 16% for Shinjiro Koizumi - financial press poll.

- Japan sells ¥1.0T VS. ¥1.0T indicated in 20-year JGB bonds; AVG YIELD: 1.6900% V 1.7060% prior; bid-to-cover: 3.47X V 3.42X prior.

South Korea

- Kospi opens +1.6% at 2,547

- Bank of Korea (BOK) Board member Hwang Kun-Il: Growth and financial stability should be considered when determining timing and pace of rate cuts - financial press.

- South Korea Director of National Policy Tae-yoon: Rate cut conditions are being created due to stabilizing inflation [overnight update].

Other Asia

- Thailand Aug Consumer Confidence: 56.5 v 57.7 prior (13-month low).

North America

- Boeing: CEO on potential Sept 12th union vote to strike: A strike would "put our shared recovery in jeopardy" - financial press, citing CEO memo to employees in Oregon and Washington.

- (US) Follow up: NHC: Heavy rains and strong winds have risen to Hurricane-force in metropolitan New Orleans.

- (US) MBA Mortgage Applications w/e Sept 6th: 1.4% v 1.6% prior.

- (US) AUG CPI M/M: 0.2% V 0.2%E; Y/Y: 2.5% V 2.5%E (lowest annual pace since early 2021); (Ex Food and Energy) M/M: 0.3% v 0.2%e; Y/Y: 3.2% v 3.2%e.

- (US) Aug Real Avg Hourly Earning Y/Y: 1.3% v 0.7% prior; Real Avg Weekly Earnings Y/Y: 0.9% v 0.4% prior.

- (US) DOE crude: +0.8M V +1ME; GASOLINE: +2.3M V 0ME; DISTILLATE: +2.3M V +0.5ME.

- (US) Treasury's $39B 10-year note reopening draws 3.648% V 4.276% prior; bid-to-cover ratio: 2.64 V 2.28 prior and 2.53 over last 8 reopenings; (1.4 bps stop through).

Europe

- *(EU) Brussels said to explore Draghi option of extending up to €350B in EU debt - FT.

- EU said to be scrutinizing Google's AI models regarding EU compliance issues - financial press.

- (UK) Aug RICS House Price Balance: +1% v -14%e.

- (EU) EU authorities allege video game makers have misled consumers into spending additional money - financial press.

- (PT) Portugal Aug Final CPI M/M: -0.3% v -0.3% prelim; Y/Y: 1.9% v 1.9% prelim.

- (RU) Russian Pres Putin: Maybe we should think about export restrictions; Also mentions titanium and nickel exports.

Levels as of 01:20 ET

- Nikkei 225 +3.2%; ASX 200 +0.8%; Hang Seng +1.1%; Shanghai Composite +0.2%; Kospi +1.8%.

- Equity S&P500 FUTs +0.1%; Nasdaq100 FUTs +0.2%, Dax +0.2%; FTSE100 +0.3%.

- EUR 1.1006-1.1017: JPY 142.24-142.96; AUD 0.6671-0.6693; NZD 0.6128-0.6153.

- Gold +0.1% at $2,546/oz; Crude Oil +0.6% at $67.69/brl; Copper +0.4% at $4.1837/lb.