Asia markets down, but generally take the news in stride

Asia market update: US Pres Biden steps down; Asia markets down, but generally take the news in stride; CN PBOC cuts 3 rates.

General trend

- US President Joe Biden became the first sitting President eligible for a second term to step down since Pres Lyndon Johnson in 1968. Biden did say that he would stay on as President until the end of his term.

- The news sent off a firestorm of news releases from Democrats. First was VP Harris, who said she would indeed run for the Presidential Nomination at the DNC Convention in August 19-22nd. Notably, Pres Biden did not initially endorse VP Harris in his announcement to step down. (Biden only later endorsed Harris via X).

- Further, senior Democrats such as Former Pres Obama, Schumer, Pelosi and Jeffries did NOT yet endorse Harris, with Obama openly stating that he is “Confident that Democratic leaders will create process for outstanding nominee to emerge”.

- On the other hand, a growing raft of Democrat leaders and organizations including Bill & Hillary Clinton, Adam Schiff, Josh Shapiro and various Governors and Representatives gave their endorsement to Harris.

- Unless Harris can stitch up adequate support over the next few weeks, the DNC Convention in August will likely turn out to be an Open Convention, with pundits comparing it to the 1968 Democrat Open Convention, which saw much in-fighting amongst candidates and their supporters to select their preference, ultimately damaging the Democrats in the 1968 election. (Ironically DNC 1968 was also held in Chicago, during a war, with the weight of candidate RFKs’ assassination and amid social unrest).

- PBOC unexpectedly cut the 7-day reverse repo by 10bps, its first cut since Aug 2023. As reported earlier, this move down to 1.7% is likely to be part of the PBOC pegging the loan prime rate (LPR) to the 7-day reverse repo and deposit rates as it prepares to engage in bond borrowing and selling into the open market via market ops.

- Then within an hour PBOC also cut both of the LPR prime rates, also by 10bps for both the 5-yr and 1-yr rates. It was the first cut for the 5-yr since Feb, 2024 and the first cut for the 1-year since Aug, 2023.

- PBOC said that the adjustments would help ‘strengthen counter-cyclical adjustment to better support real economy” and also that it would 'appropriately' reduce collateral for MLF operations from July.

- TTN had reported last week a Tier 1 securities firm in China forecasting that the PBOC may want to increase the outstanding reverse repo amount to gradually replace the MLF amount.

- South Korea exports continued their upward trajectory, led by further increases in chip exports.

- Most Asian equity indices lower, led by Taiwan’s Taiex declining >2.5%, with Taiwan Semi down >2%. China equity markets also declined, despite dual easing of rates by PBOC; Property and Bank indices lagged. Nikkei -1%. Hang Seng alone outperformed, +0.7% with HK Tech +2%.

- Currencies generally ticked up against USD after the markets reopened this morning post-Biden news, although later commodity currencies kiwi and aussie both fell -0.2%, continuing their drop after the PBOC rate cut announcements.

- Gold +0.4% and WTI Crude +0.6%, with Copper steady.

- US equity FUTs +0.2% to 0.4% during Asian trading.

Looking ahead (Asian time zone)

- Tue 23rd KR Jun PPI, SG CPI, China Jun YTD FDI due.

- Wed 24th KR July Consumer Conf, AU + JP + IN July Flash PMI, (Wed eve DE Aug Consumer Conf + July Flash PMI, Wed night CA BOC Rate Decision).

- Thu 25th KR Adv Q2 GDP, (Thu eve DE July Business Climate, Fri night US Q2 Adv GDP).

- Fri 26th (Fri night *US Jun Core PCE).

Holidays in Asia this week

- Mon July 22nd Thailand.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens -0.1% at 7,961.

- New Zealand Jun Trade Balance (NZ$): 0.7B v 54M prior (revised lower).

- Australia PM Albanese: Australia has Not experienced any impact to critical infrastructure, government services or Triple-0 emergency services at this stage [weekend update].

China/Hong Kong

- Hang Seng opens +0.3% at 17,465; Shanghai Composite opens -0.1% at 2,978.

- CHINA PBOC MONTHLY LOAN PRIME RATE (LPR) SETTING: CUTS BOTH 1-YEAR AND 5-YEAR RATES BY 10BPS.

- CHINA PBOC CUTS 7-DAY REVERSE REPO BY 10BPS TO 1.7% (prior 1.8%, first cut since Aug 2023).

- China PBOC to strengthen counter-cyclical adjustment to better support real economy - financial press.

- (CN) China PBOC to 'appropriately' reduce collateral for MLF operations; To take effect from July - press.

- (US) White House National Security Advisor Sullivan: Intend to use sanctions against banks that help Russia's war machine [weekend update].

- China Commerce Ministry (MOFCOM): To conduct final review on EU stainless steel imports.

- China Commerce Min (MOFCOM): China appreciates European Auto Makers like Volkswagen who advocate fair competition, strongly oppose EU tariff against Chinese NEVs [weekend update].

- China PBOC: Reiterates to keep monetary policy prudent and to keep Yuan FX rate basically stable [weekend update].

- (CN) China Premier Li: Will implement reform tasks outlined by party plenum [weekend update].

- China PBOC sets Yuan reference rate: 7.1335 v 7.1315 prior.

- (CN) China PBOC Open Market Operation (OMO): Sells CNY58.2B in 7-day reverse repos; Net drains CNY70.8B v net injects CNY57B prior.

Japan

- Nikkei 225 opens -0.3% at 39,947.

- Japan Outgoing Top FX Diplomat Kanda: G-7 this week will focus on Ukraine support, Russian sanctions and global tax- Japanese press.

- Welcia (3141.JP) Amazon Japan to sell prescription drugs online in Japan as early as this year with Welcia (drug store chain operator) - Japanese press.

- CEO of Sony-Honda JV: Chinese competitors are very strong, and I’m very scared of their implementation and execution speed; Estimates the development time of Chinese EVs — from concept to production — has shrunk to as little as 18 months, less than half of the time it took to develop a car in Japan - FT.

- Bank of Japan (BOJ) publishes minutes of Bond Market Group meetings held on July 9-10th; BOJ should decide and announce the planned amount of JGB purchases for the next two years at the upcoming Monetary Policy Meeting. Meanwhile, the planned amount in each maturity segment should be quarterly determined by the Financial Markets Department from the viewpoint of ensuring flexibility [weekend update].

- Japan PM Kishida: Certain period of time needed to change deflationary mindset - Nikkei interview [weekend update].

South Korea

- Kospi opens -0.2% at 2,790.

- (KR) South Korea July 1-20 Exports Y/Y: 18.8% v 8.5% prior; Imports Y/Y: 14.2% v -0.6% prior.

Other Asia

- (TW) Taiex declines >2.5%.

- (VN) Vietnam Party Chief Trong passes away at age 80 - press (update).

- Singapore Central Bank (MAS) Chief: Money market and foreign exchange market functioned normally today despite CrowdStrike error [weekend update].

North America

- Nvidia: Said to working on new version of 'flagship AI chips' for China market compatible with US export controls - US financial press.

- (US) Democratic party fund-raising increases by $50M since Pres Biden announced his decision to step down earlier today - financial press.

- (US) Sen Joe Manchin (D-WV); Said to be weighing whether to re-register as a Democrat as part of potential bid to replace Pres Biden - US press.

- (US) RCP Avg betting odds for US Presidential Race: Trump 58.7%, Harris 29.9%.

- (US) US VP Harris' team said to be contacting delegates to build support - US press.

- (US) House Democrat Adam Schiff and Josh Shapiro (D-PN) endorse Kamala Harris for President - US press.

- TTN Research Alert: Legal aspects of replacement Biden with Harris in US presidential race now; Potential candidates for Harris's VP pick; Other notable examples of US presidential candidates being replaced during an election cycle.

- (US) Democratic National Committee's Chair: The American people will hear from the Democratic party on next steps and the path forward for the nomination process.

- (US) Reportedly supporters of California Gov Newsom are circulating a polling memo making the case for the Democratic nomination for president; The memo was shared with Newsom’s donors and political supporters before Pres Biden withdrew from the race Sunday – Semafor.

- (US) Reportedly Michigan gov Whitmer and California gov Newsom do not plan to challenge harris - CBS news.

- US) Largest Democratic Party super PAC Priorities USA to support Kamala Harris as 2024 Democratic Presidential nominee - press.

- (US) TTN Note: Schumer, Pelosi, Jeffries, Obama so far have not endorsed Harris in their statements.

- (US) VP Harris: Intend to win democratic nomination.

- (US) Bill and Hilary Clinton endorse Kamala Harris - X statement.

- (US) Former Pres Obama: Confident that Democratic leaders will create process for outstanding nominee to emerge; For now just want to express gratitude to Biden.

- (US) Former Pres Trump: Think Harris will be easier to defeat that Biden would have been - CNN citing call.

- (US) President Joe Biden steps down as democratic presidential candidate; endorses VP Kamala Harris as replacement (1st time US presidential candidate drops out from the race since Lyndon B. Johnson in Mar 1968, eight months before 1968's US elections).

- Reportedly ~8.5M devices using Windows were affected by Crowdstrike's global outage (less than 1% of all Windows OS computers) - press.

- (US) President Biden campaign notes he is remaining in the race; No plans for alternative nominee - CNBC citing memo Follow up: Biden family said to be discussing exit plans – NBC [weekend update].

Europe

- (UK) UK govt said to be ready to offer teachers and nurses 5.5% pay rise (above rate of inflation) - financial press.

- (EU) ECB’s Makhlouf (Ireland Central Bank Chief): There’s no need to actually rush to make decisions; No predetermined rate path - interview.

Levels as of 01:20 ET

- Nikkei 225 -1.2%; ASX 200 -0.7%; Hang Seng +0.7%; Shanghai Composite -1.0%; Kospi -1.2%.

- Equity S&P500 FUTs +0.2%; Nasdaq100 FUTs +0.4%, Dax +0.3; FTSE100 +0.2%.

- EUR 1.0881-1.0903: JPY 157.15-156.57; AUD 0.6663-0.6703; NZD 0.5991-0.6028.

- Gold +0.3% at $2,406/oz; Crude Oil +0.5% at $79.00/brl; Copper -0.1% at $4.2307lb.