Asian equities down on fitch US Sovereign rating downgrade

General trend

- Asian trading got a surprise pre-open (and after the NY close) with Fitch cutting its US Sovereign Rating down to 'AA+' from 'AAA'; Fitch cited repeated political standoffs on debt limit and limited progress on addressing entitlement spending.

- The downgrade means that Fitch joins S&P at rating the US at 'AA+', the first time since August 5, 2011 that US Sovereign debt has been downgraded when S&P downgraded from AAA to AA+. That in turn was the first time the US had been downgraded since 1917.

- Japan equities were also not helped by a report in Japanese media that Japan insurers are suspected of price fixing on oil refiners; Tokio Marine -4.5%, MSA&D -4.2%, Sompo -4.2%.

- Nomura Holdings shares -8% after Q1 earnings, joined by Konica Minolta -10% after wider than est. Q1 Op loss, but balanced out by Toyota +3% after Net +78% y/y.

- As Japan’s JGB markets settle into the new 1.0% allowable band on 10-yr bonds, the yield on 10-yr JGBs moved up 3.5bps to 0.6260%, a nine year high.

- Australia 10-Year real yields +4.2bps to 1.53% (nominal yields +0.028bps to 4.0160%). All equity sectors declined in Australia, with Aussie REITS -1.9% and Financials -1.5%.

- in China, the PBOC kept up Yuan support with a fix 305 pips stronger than estimates.

- Hang Seng Mainland Properties Index +4% early on, buoyed by Country Garden Service’s planned stock buyback (see below), but fell back to be only slightly positive +0.7% as the session went on..

- US equity FUTs down ~0.5%.

Looking ahead (Asian time zone)

- Thu AU Balance of Trade, CN Caixin Services PMI.

- Thu evening UK BOE rate decision.

- Thu night US ISM Services PMI.

- Fri night US non-farm payrolls and unemployment.

Holidays in Asia this week

- N/A.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens -0.2% at 7,437.

- Australia sells A$700M v A$700M indicated in 3.75% May 2034 bonds; Avg Yield: 4.0135%; bid-to-cover 2.99x.

- Follow Up: New Zealand government has given the RBNZ NZ$500M in additional capital.

- New Zealand Fin Min Robertson: Hard choices may be needed to curb spending.

- New Zealand Q2 Unemployment Rate: 3.6% v 3.5%e (two year high).

- New Zealand July CoreLogic House Prices Y/Y: -10.1% v -10.6% prior.

- Fonterra Global Dairy Trade Auction Dairy Trade price index: -4.3%.

China/Hong Kong

- Shanghai Composite opens -0.3% at 3,281.

- Hang Seng opens -0.5% at 19,902.

- Hong Kong Jun Retail Sales Value Y/Y: 19.6% v 19.1%e; Retail Sales Volume Y/Y: 17.5% v 17.8%e (overnight update).

- Country Garden Services (6098.HK) Guides H1 (CNY) Net 2.32-2.58B, Rev 20.7-20.9B; Plans to buyback up to 337.31M shares from open market.

- China PBOC sets Yuan reference rate: 7.1368 v 7.1283 prior.

- China PBOC Open Market Operation (OMO): Sells CNY9B in 7-day reverse repo; Net drains CNY95B v net drains CNY36B prior (second consecutive net drain).

- China FX Regulator SAFE: Reiterates stance to keep CNY currency (Yuan) reasonable and balanced level (overnight update).

- US Congress reportedly investigating BlackRock and MSCI for facilitating China investments; Both firms could face Congressional probe (overnight update).

Japan

- Nikkei 225 opens -1.1% at 33,123.

- Japan end-July Monetary Base: ¥668.9T v ¥670.6T prior.

- Bank of Japan (BOJ) Jun Minutes (2 decisions ago): Important to continue with current easing.

- Japan BOJ's Dep Gov Uchida: Will continue with easing patiently (inline).

- Japan insurers suspected of price fixing on oil refiners.

- 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 -0.6% at 2,651.

- South Korea July CPI M/M: 0.1% V 0.2%E; Y/Y: 2.3% V 2.4%E (slowest annualized rise since Jun 2021).

- Bank of Korea (BOK): Inflation rate will rebound from Aug and move around 3% until year-end.

- South Korea Finance Ministry: Inflation uncertainty to expand in Aug, Sept due to seasonal factors.

- Bank of Korea (BOK): July Minutes (overnight update).

Other Asia

- Senior US and Chinese diplomats met in Washington on Monday, July 31st to discuss Taiwan, other issues of bilateral concern and how to responsibly manage the bilateral relationship.

- Thailand July PMI Manufacturing: 50.7 v 53.2 prior (19th month of expansion).

- Indonesia July CPI M/M: 0.2% v 0.2%e; Y/Y: 3.1% v 3.1%e (3rd straight month within target band).

North America

- Fitch cuts US sovereign rating one notch to 'AA+' from 'AAA'; Outlook Stable; Cites repeated political standoffs on debt limit and limited progress on addressing entitlement spending [joins S&P at rating US at 'AA+].

- (US) Paychex IHS Markit July Small Business Employment Watch: 99.14 v 99.14 m/m.

- (US) Jun construction spending Mh/M: 0.5% V 0.6%E.

- (US) July ISM manufacturing: 46.4 V 46.9E; Prices Paid: 42.6 v 43.0e; New Orders: 47.3 v 45.6 prior.

- (US) Jun JOLTS job openings: 9.58M V 9.600ME (lowest since Apr 2021); Quits rate 2.4% v 2.6% prior.

- (US) Atlanta Fed GDPNow: Raises Q3 GDP forecast from 3.5% to 3.9%.

- (US) Fed's Goolsbee (Voter): Recent FOMC decisions close calls for him as Fed tries to manage transition.

- (US) Fed's Bostic (non-voter): Expect unemployment to rise as inflation falls, but perhaps only to upper 3-4%; Baseline outlook is for no rate cuts until H2 2024 at the earliest.

Europe

- Eurozone Jun unemployment rate: 6.4% V 6.5%E.

- EurozoneE July final manufacturing PMI: 42.7 V 42.7E (confirms 13th straight contraction).

- Germany July unemployment change: -4.0K V +25.0KE; unemployment claims rate: 5.6% V 5.8%E.

- Germany July final manufacturing PMI: 38.8 V 38.8E (confirms 13th straight contraction and lowest since May 2020); Notes 'deflation is here'; Employment decreases for first time in two-and-a-half years.

Levels as of 01:20 ET

- Nikkei 225, -2.4%, ASX 200 -1.3% , Hang Seng -2.2%; Shanghai Composite -1.0% ; Kospi -2.1%.

- Equity S&P500 Futures: -0.5%; Nasdaq100 -0.7%, Dax -0.9%; FTSE100 -0.4%.

- EUR 1.0980-1.0020 ; JPY 142.63-143.37 ; AUD 0.6579-0.6631 ; NZD 0.6101-0.6169.

- Gold +0.3% at $1,985/oz; Crude Oil +0.9% at $82.10/brl; Copper -0.4% at $3.8902/lb.