Asian equities follow US markets up post-Powell

Asia market update: Asian equities follow US markets up post-Powell; Yen continues inching down; CN Caixin Services PMI disappoints; Focus on US Jun ISM Services PMI, FOMC Minutes.

General trend

- Broad-based gains in Asian stocks (other than Shanghai) followed extensive gains overnight in the S&P and Nasdaq, with markets taking cheer from USFed Chair Powell’s remarks at the Sintra Forum that the US has made quite a bit of progress toward getting inflation back toward target. Debt sustainability should be the focus going forward and that Inflation a year from now should be in mid-to-low twos.

- EUR/JPY continued inching up to hit fresh record highs and USD/JPY hit fresh 38-year highs. Thus far no comment from Japan officials today during Asian trading

- Australian Retail Sales registered their fastest rise since January. However, the Aussie Stats Agency said that retail businesses continue to rely on discounting and sales events to stimulate discretionary spending and that underlying spending remains stagnant with retail turnover flat in trend terms. Compared to May 2023, the trend is only up 1.5%

- China’s Caxin Services PMI registered its slowest pace in 8 month, as business confidence levels eased to the lowest level since March 2020, with concerns about the global economy and rising competition. Service providers were also scaling back hiring again last month after adding employment in May. China offshore Yuan pierced below 7.31 against USD for first time since Nov 3, 2023

- Japan’s June Final PMI Services confirmed the 1st month of contraction after 20 months expansion

- Various senior Korean officials commented on capital flows as Korean FX reserves hit multi-year low

- Thailand Dep Fin Min said that he is not worried about rising public debt as the govt plans additional measures to boost GDP growth to 3% in 2024 (The World Bank earlier cut 2024 GDP forecast from 2.8% to 2.4%).

- US equity FUTs -0.1% during Asian trading

Looking ahead (Asian time zone)

- Wed July 3rd (Wed night US Jun ISM Services PMI, FOMC Minutes)

- Thu July 4th AU May Balance of Trade (Thu night UK General Election)

- Fri Jul 5th (Fri night US Jun NFP)

Holidays in Asia this week

- Mon July 1st Hong Kong

- Wed July 3rd Early close at 13:00ET for US markets (Wed night Asia time)

- Thu July 4th US Independence Day (Thu night Asia time)

Headlines/economic data

Australia/New Zealand

- ASX 200 opens +0.1% at 7,723

- AUSTRALIA MAY RETAIL SALES M/M: 0.6% V 0.3%E [fastest rise since Jan]

- Australia May Building Approvals M/M: 5.5% v 1.6%e; Private Sector Houses M/M: +2.1% v -1.6% prior

- Australia Jun Final PMI Services: 51.2 v 51.0 prelim (confirms 5th month of expansion)

- Australia sells A$600M vs. A$600M indicated in 3.75% Apr 2037 bonds; Avg Yield: 4.5109% v 4.2872% prior; bid-to-cover: 3.81x v 2.79x prior

- New Zealand Jun ANZ Commodity Price M/M: 1.5% v 1.1% prior

China/Hong Kong

- Hang Seng opens +0.4% at 17,841; Shanghai Composite opens flat at 2,995

- China Jun CAIXIN PMI services: 51.2 V 53.4E (slowest pace in 8 months)

- China Finance Ministry (MOF): Asks underwriters of 30-year Treasury bonds to resubmit bids [relates to bonds being sold on Jul 5th]; PBOC plan to borrow bonds might shift demand for Treasuries.

- (RU) China is building and testing attack drones modeled on Iran's Shahed drones for Russia, which could constitute 'lethal aid' for Russia - press.

- (RU) Russia Pres Putin to meet with China's Xi and Turkey's Erdogan on July 3rd in Astana, Kazakhstan - Russian press.

- China June NEV sales +28% y/y v +32.7% y/y prelim – PCA [overnight update].

- China Commerce Min Wang: Hope to start Free Trade Agreement (FTA) talks with Switzerland [overnight update].

- Offshore Yuan breaks 7.31 against USD, for first time since Nov 3, 2023.

- China PBOC sets Yuan reference rate: 7.1312 v 7.1291 prior (weakest since Nov 21, 2023).

- China PBOC Open Market Operation (OMO): Sells CNY2B in 7-day reverse repos; Net drains CNY248B v net drains CNY298B prior.

Japan

- Nikkei 225 opens +0.4% at 40,225.

- Japan Jun Final PMI Services: 49.4 v 49.8 prelim (confirms 1st month of contraction after 20 months expansion).

- Bank of Japan (BOJ): Output gap has remained negative for 4 years: Q1 output gap -0.66 v -0.03 q/q [lowest since Q2 2022].

- Japan PM Kishida to visit US and Germany from July 10-14th; To meet with ruling coalition members of NATO and meet German Chancellor Scholz - Japanese press.

- BOJ Gov Ueda: Cash to continue to play a big role for settlements in Japan – press.

- Bank of Japan (BOJ) announcement related to outright bond buying operations: For 1-3 Years; 3-5 Years and 10-25 Years (lnline with prior purchases).

- Japan Outgoing Top FX Diplomat Kanda: We must be aware of potential rating downgrade risk as yields rise [overnight update].

- Japan Chief Cabinet Sec Hayashi: Rising interest rates could put pressure on govt finances [overnight update].

South Korea

- Kospi opens +0.6% at 2,797.

- South Korea Pres Yoon: Headline inflation is stabilizing; Foreign investment inflows strong - Korean press.

- South Korea PM Han: Interest rate path to head downwards.

- South Korea Fin Min Choi: Raises 2024 forecast economic growth to 2.6% (prior 2.2%).

- South Korea June Foreign Reserves: $412.2B v $412.8B prior (lowest reserves since Jun 2020).

Other Asia

- India Jun Final PMI Services: 60.5 v 60.4 prelim (35th straight expansion).

- Taiwan FSC: Life Insurers more motivated to invest locally as risk of overseas investments increase - financial press.

- Thailand Fin Min: Plans additional measures to boost GDP growth to 3% in 2024 - financial press.

- Singapore Jun PMI (whole economy): 55.2 v 54.2 prior.

- Singapore Jun Purchasing Managers Index (PMI): 50.4 v 50.6 prior [overnight update].

- Philippines Foreign Ministry: Philippines and China re-commit to de-escalate tensions [overnight update].

- Country Garden (2007.HK) To be removed from Hang Seng Composite Index – press [overnight update].

North America

- (IL) Israeli PM Netanyahu said to meet US Pres Biden 'later this month' in Washington during his US trip - CNN.

- (US) Paychex IHS Markit June Small Business Employment Watch: 100.29 v 100.58 m/m.

- (CA) Canada Jun Manufacturing PMI: 49.3 v 49.3 prior.

- (US) Fed Chair Powell: Labor market is still strong; Services inflation is sticker and usually tied to wages; Wage increases moving back down towards more sustainable levels, but still above where they will wind up in equilibrium - Sintra Forum.

- (US) MAY JOLTS JOB OPENINGS: 8.140M V 7.955ME; April revised lower.

- (US) Fed's Goolsbee (non-voter for 2024): I am in agreement we are restrictive; Sees some warning signs that the real economy is weakening - CNBC.

Europe

- EU proposes import duties against Chinese online retailers Shein and Temu - FT.

- Ireland Jun PMI Services: 54.2 v 55.0 prior (39th month of expansion, but below the long-run series average of 55.1).

- (EU) ECB Chief Lagarde: We are very advanced in disinflation process; A lot of wages is behind the sticky services inflation - Sintra Forum.

- (EU) ECB’s Makhlouf (Ireland): Two cuts is probably going a little bit too far, but I wouldn't rule it out.

- (EU) Sintra takes spotlight as ECB comments fall in line; French anti-far-right coalition talks in focus; Attention turns to Powell [overnight update].

Levels as of 01:20 ET

- Nikkei 225 +1.3%, ASX 200 +0.3%; Hang Seng +0.9%; Shanghai Composite -0.5%; Kospi +0.5%.

- Equity S&P500 Futures: -0.1%; Nasdaq100 -0.1%, Dax +0.1%; FTSE100 +0.4%.

- EUR 1.0737-1.0755; JPY 161.39-161.88; AUD 0.6665-0.6682; NZD 0.6073-0.6188.

- Gold +0.5% at $2,343/oz; Crude Oil +0.4% at $83.17/brl; Copper +0.4% at $4.4440/lb.