US and China officials confirmed recent phone contact

Asia Market Update: Asian equity markets trade mostly lower as caution prevails ahead of G20; US and China officials confirmed recent phone contact, Trump/Xi expected to meet on 2nd day of G20

General Trend:

- Concerns about possible US restrictions continue to weigh on IT and Telecom Services firms in China

- Shanghai banking index underperforms, press reports note lingering impact of bailout announcement related to Baoshang Bank

- Shanghai Pudong Development Bank declines , US judge rules the firm is in contempt for refusing to comply with North Korea sanctions probe

- China Merchants Bank declines over 5%

- Chinese footwear company Li Ning rises over 13% on its guidance

- Brokerage firms are among the decliners in Japan, along with Softbank and Fast Retailing

- ASX 200 index supported by rise in gold miners

- Kiwi (NZD) rises ahead of Wednesday’s RBNZ policy decision

- Gold Futures extend gain as the US Fed and geopolitical concerns remain in focus

- China June local government bond issuance may hit record high, funds are being used to finance infrastructure projects (Chinese press)

Headlines/Economic Data

Australia/New Zealand

-ASX 200 opened flat

- (NZ) New Zealand May Trade Balance (NZ$): 264M v 250Me

- SPO.AU Applies for ASX delisting

-(NZ) New Zealand Fin Min Robertson: OECD survey notes global risks

Japan

-Nikkei 225 opened -0.3%

- 7201.JP CEO : Will implement swift reforms of corporate governance system, see tough times ahead but will put efforts into improving governance; planning business recovery within 3-years; Prioritizing performance recovery, postponing discussions on deepening alliance talks - AGM

-RNO.FR CEO: I did everything I could to smooth over relationship between Renault and Nissan, which was worse than I expected; i never considered FCA pact without alliance - Nissan AGM

- (JP) Japan May PPI Services Y/Y: 0.8% v 1.0%e

- (JP) Japan, US and Australia will jointly finance a $1.0B LNG project in Papua New Guinea as part of pact made in Nov to offer alternative to China's Belt and Road – Nikkei

- (JP) Bank of Japan (BOJ) minutes from April policy meeting (two meetings ago): although it would take time to achieve 2% price stability target, appropriate to persistently continue with the current powerful monetary easing as the momentum toward achieving 2% inflation was being maintained with the output gap remaining positive (little changed from prior months minutes)

- (JP) Japan Economy Min Motegi: Planning to hold talks with Lighthizer, talks will proceed along the line of joint statement

- (CN) China Center for International Economic Exchanges Vice Chairman Wei Jianguo: Trade volume between China and Japan is expected to see double digit growth in 2019 - China Daily

-(JP) Japan MoF sells ¥745.5B v ¥900B indicated in 0.4% (prior 0.40%) 20-year bonds; avg yield 0.2080% v 0.359% prior; bid to cover 4.08x v 5.47x prior

Korea

-Kospi opened flat

- (KR) US Pres Trump: I sent North Korea Leader Kim a very friendly letter; Kim sent me birthday wishes

- (KR) South Korea Jun Consumer Confidence: 97.5 v 97.9 prior (5-month low)

- (KR) South Korea Fin Min Hong has asked 18 major banks to increase its lending to small and medium sized companies as part of efforts to boost the economy – Yonhap

- (KR) South Korea would still like to have an inter-Korea summit before S. Korea President Moon holds talks with President Trump this weekend – Yonhap

- 017670.KR To set up JV with Deutsche Telekom to develop 5G technology

China/Hong Kong

-Hang Seng opened -0.2%; Shanghai Composite opened -0.1%

- (CN) China will "not allow" G20 to talk about protests in Hong Kong, considers it an internal affair – Nikkei

- (CN) China June local govt bond issuance expected to hit a record high of CNY800B with CNY594B issued as of June 21 and additional CNY200B planned for last week of June - China Daily

- (CN) Senior White House Administration Official: China President Xi likely to meet with Trump on second day of G20, will be confirmed by officials later – press

- (CN) China MOFCOM: Confirms Vice Premier Liu He and USTR Lighthizer exchanged comments over the phone; agreed to maintain communications

- (CN) China PBoC sets yuan reference rate: 6.8580 v 6.8503 prior

- (CN) China PBoC Open Market Operation (OMO): Skips for the second consecutive session

- (CN) China Center for International Economic Exchanges Vice Chairman Wei Jianguo: Trade volume between China and Japan is expected to see double digit growth in 2019 - China Daily

Other

- (US) President Trump has told Japan and China they are responsible for defending their own ships in Strait of Hormuz (implying US will no longer help) - Nikkei citing tweets

- (SG) Singapore PM Loong: China and the US need to engage at the top level to build trust; trade war consequences will be "even more serious than the financial crisis" a decade ago - press interview

-(TH) Thailand May Manufacturing Production Index Y/Y: -4.0% v -1.5%e (lowest since 2014)

North America

- (US) Fed's Kaplan (dove, non-voter): concerned a rate cut now could fuel imbalances; wise to take time to consider if we need to change rates

- (US) Jun Dallas Fed Manufacturing Activity: -12.1 v -2.0e (lowest since Jun 2016)

- (US) Pres Trump: Reiterates he can fire Fed Chair Powell if he wanted to; no plans to do anything; Powell is incorrect on 4-year term understanding

-(IR) Iran For Min Spokesman Mousavi: Latest US sanctions means 'closing channel of diplomacy forever'

Europe

-(DE) Germany Finance Ministry: 2020 budget to rise 1% to €359.9B

Levels as of 1:20 ET

- Nikkei 225, -0.7%%, ASX 200 -0.1%, Hang Seng -1.3%; Shanghai Composite -1.5%; Kospi -0.3%

- Equity Futures: S&P500 -0.3%; Nasdaq100 -0.5%, Dax -0.2%; FTSE100 -0.3%

- EUR 1.1411-1.1394; JPY 107.41-106.77 ; AUD 0.6973-0.6954 ;NZD 0.6646-0.6615

- Gold +1.1% at $1,434/oz; Crude Oil -0.7% at $57.47/brl; Copper +0.2% at $2.712/lb