France election sees hung Parliament, CN PBOC releases details on bond borrowing ops

Asia market update: FR election sees hung Parliament; CN PBOC releases details on bond borrowing ops; Most Asian equities lower amid new records for JP & TW; US Pres Biden / Democrats drama continues.

General trend

- France 2nd Round Election outcome sees a hung parliament, with none of the three sides able to force through their agenda, even as the Left-wing Popular Front took the highest number of seats, with Macron’s Party second and Le Pen’s National Rally in third play (after winning the 1st round). The outcome likely means no major changes to fiscal policy for hhat least one year (the minimum time before Pres Macron can call another election). The Left-wing New Popular Front said it refuses any deals with Pres Macron, which would ensure a three-way deadlock. The markets (initially at least) seemed to take the result in stride, with EUR and French bonds just modestly lower. France’s CAC-40 index initially down modestly, but by afternoon Asia time FUTs +0.1%.

- Asian equities were mostly lower, with the stark exceptions of the Taiwan Taiex +1.5% to a record high after Foxconn / Hon Hai ADRs up 5% in Fri NY session, and Japan's Nikkei 225 also traded at a fresh record intraday high of 41,112 (Note: Mar 21st record closing price still 40,888).

- Japan Labor Cash and Real Cash earnings both came in below estimates. However, the govt also commented that companies with >30 employees beat inflation for first time in 26 months. Base pay, or regular pay, also rose 2.5% YoY in May, the best pace since Jan 1993. This comes after the March 2024 ~5.1% increase in overall monthly pay by Japanese firms, a level unseen in 33 years.

- Japan’s current account came in with a higher surplus than estimated.

- China June Foreign Reserves show China has largely halted gold purchases for the 2nd straight month after 18 straight rises previously.

- China PBOC releases details on operations ‘Large-Scale’ Bond Borrowing; China 30-year Treasury Bond Futs -0.5%, with 10-year yields now 12bps higher than a week ago when they hit an all time low of ~2.18%.

- Further signs of a slowdown in EV demand with an emergency warning released from SK On, the world’s fourth-largest EV battery maker as low EV sales continue Co’s losses for 10 consecutive quarters since being spun off by its parent company in 2021.

- Aussie dollar highest against USD since January.

- US equity FUTs -0.1% during Asian trading

Looking ahead (Asian time zone)

- Mon July 8th (Mon eve DE May Balance of Trade).

- Tue July 9th AU July Consumer Conf & Biz Conf, (Tue night US Fed Chair Powell Senate Testimony).

- Wed July 10th CN Jun CPI, KR Jun Unemployment, NZ Rate Decision, (Wed night US Fed Chair Powell House Speech).

- Thu July 11th JP May Machinery Orders, KR Rate Decision, (Thu eve UK May GDP, Thu night US Jun CPI).

- Fri July 12th CN Jun Balance of Trade, SG Q2 GDP, (Fri night US Jun PPI, US July Michigan Consumer Conf).

Holidays in Asia this week

- Mon July 8th Malaysia.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens -0.1% at 7,818.

- Australia May Home Loans Value M/M: -1.7% v 1.8%e.

- AVAV [AeroVironment): (AU) Australia Defence Industry Min Conroy: Australian govt to buy Switchblade 300 Precision Loitering Munitions - statement.

- Australia Jun Foreign Reserves (A$): 94.9B v 91.3B prior [weekend update].

- RBNZ shadow board (NZIER): Recommends New Zealand RBNZ keep the OCR at 5.50% in July.

China/Hong Kong

- Hang Seng opens -0.7% at 17,667; Shanghai Composite opens -0.3% at 2,939.

- China could surpass both US and EU on magnetic fusion within three years - WSJ.

- Follow Up: China analysts see ‘greater probability’ of RRR cut in H2 [Q3] – China Securities Journal.

- Follow up: China PBOC expected to Conduct ‘Large-Scale’ Bond Borrowing; Releases details on operations - PBOC-backed Financial News.

- Hungary PM Orban arrives in Beijing for talks with China Pres Xi - Orban's office statement.

- China Premier Li Qiang: China to improve environment for digital economy - State Council meeting [weekend update].

- China Association of Automobile Manufacturers [CAAM) says its "strongly dissatisfied" with temporary anti-subsidy tariffs proposed by the EU [weekend update].

- China June Foreign reserves: $3.232T V $3.232T PRIOR; halts gold buying for 2nd straight month; Gold reserves: $171.0B v $168.0B prior [weekend update].

- Xinhua releases views on capital market financial fraud: China to maintain stable operation of capital markets [weekend update].

- China PBOC sets Yuan reference rate: 7.1286 v 7.1289 prior.

- China PBOC Open Market Operation (OMO): Sells CNY2B in 7-day reverse repos; Net CNY0B v net drains CNY48B prior.

Japan

- Nikkei 225 opens -0.1% at 40,863.

- Nikkei 225 trades at fresh record intraday high of 41,112 (Note: Mar 21st record closing price still 40,888).

- Japan May Current Account: ¥2.8T v ¥2.4Te.

- Japan May Bank Lending Y/Y: 3.2% v 3.0% prior.

- Japan May Labor cash earnings Y/Y: 1.9% V 2.1%E.

- Japan Jun Eco Watchers Current Survey: 47.0 v 46.1e; Outlook Survey: 47.9 v 46.5e.

- Bank of Japan (BOJ) Quarterly Regional Economic Report (Sakura): Raises assessment of 2 of 9 regions; Downgrades assessment of 2 of 9 regions; Keeps assessment of 5 of 9 regions unchanged.

- Japan Chief Cabinet Sec Hayashi: Watching future wage trends closely [follows May data].

- Japan Jun Flows Data: Foreigners sold net ¥165.0B in Japan equities; Japan sold net ¥3.35T in foreign bonds.

- Japan MOF: Japan registers first Primary Income surplus since comparable data became available in 1985 - Japanese press.

- Reminder: Japan stock market to face $7.0B ETF-related sell-off on Mon and Wed - Nikkei.

- Japan and Germany reportedly plan talks on economic security framework - Japanese press.

- Toyota (7203.JP) Concludes investigation into certification issues; Notes it did Not find any new issues over last 10 years [weekend update].

South Korea

- Kospi opens flat at 2,862.

- South Korea Jun Foreign Net Investment in Local Bonds: (KRW): -1.05T v +1.48T m/m.

- LG Energy: 373220.KR Reports prelim Q2 (KRW) Op 195.3B v 242.0Be, Rev 6.2T v 6.59Te.

- SK On (096770.KR) World’s fourth-largest EV battery maker SK On declares emergency as EV sales disappoint – FT [weekend update].

Other Asia

- Philippines Central Bank (BSP) Gov Remolona: Peso relative to peers has been ‘somewhat’ stronger; we worry about sharp Peso depreciation.

- Follow up: Philippines signs Reciprocal Access Agreement with Japan – press.

North America

- Paramount: Confirms to merge with Skydance Media in ~$8B all-stock deal to form "New Paramount".

- Boeing confirms to be fined $243.6M as part of agreement with DOJ; To invest $455M in safety - US press, citing DOJ official.

- (US) NHC update on Beryl: The Hurricane Warning south of Port Aransas has been changed to a Tropical Storm Warning.

- (US) Update on Hurricane Beryl: Port of Houston to close all traffic ahead of incoming storm - US press.

- (US) Senior US House Democrats reportedly tell House Minority leader Jeffries (D-NY) that they are privately calling for Pres Biden to step aside - US press, citing sources.

- (US) Trump campaign said to be eyeing VP announcement by July 15th and internal talks have focused heavily on Sens. J.D. Vance (R-Ohio) and Marco Rubio (R-Fla.) - WaPo.

- (US) Reportedly fast-growing number of Democrats are "praying for and plotting" a more earthly intervention to beg Biden to drop out of the race by Friday, July 12th; Lawmakers from all factions of the party tell Axios that big donors and key constituents have grave concerns about Biden's strength - Axios.

- (US) Pres Biden: I'm completely ruling out dropping out of the race; Congressional members are telling me to stay in the race - comments to the press pool [weekend update].

- (US) Senior US Official: NATO allies to unveil bridge to membership for Ukraine at next week's summit [weekend update].

- (US) Fed: Labor supply and demand resembles period right before pandemic, when the labor market was relatively tight but not overheated - Semi-annual monetary policy report [weekend update].

- (US) Jun change in Nonfarm Payrolls: +206K V +190KE; Two-Month Payroll Net Revision -111K v -15K prior [weekend update].

- (US) Jun average hourly earnings M/M: 0.3% V 0.3%E; Y/Y: 3.9% V 3.9%E [weekend update].

- (US) Jun unemployment rate: 4.1% V 4.0%E (highest since end-2021; second straight increase) [weekend update].

Europe

- (IE) Ireland June Construction PMI: 47.5 v 49.8 prior.

- (FR) French PM Attal offers resignation after Macron party's election defeat and a hung parliament - press.

- (FR) French parliamentary snap election (2nd round) official exit polls; Left-wing Popular Front alliance seen to win 2nd round; Le Pen's Right-wing National Rally party seen to finish only third, getting 110-158 seats (289 needed for absolute majority).

- (UK) New UK PM Starmer names new Cabinet and Chairs its first meeting - UK press (update).

- (UK) New UK PM Starmer expects to meet with Pres Biden at the NATO summit in Washington DC next week (July 9-11th) – Telegraph [weekend update].

- (IR) Reformist candidate Masoud Pezeshkian wins the Iran Presidential election runoff, beating the hard line conservative candidate [weekend update].

- (EU) Eurozone May Retail Sales M/M: 0.1% V 0.2%E; Y/Y: 0.3% V 0.2%E [weekend update].

Levels as of 01:20 ET

- Nikkei 225, +0.1%, ASX 200 -0.7% , Hang Seng -1.9%; Shanghai Composite -0.7% ; Kospi -0.2%.

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

- EUR 1.0802-1.0837; JPY 160.26-160.84 ; AUD 0.6736-0.6762 ;NZD 0.6134-0.6154.

- Gold -0.2% at $2,393/oz; Crude Oil -0.3% at $82.89/brl; Copper -1.0% at $4.6208/lb.