Yen strength holds – Focus on ECB rate decision

Asia market update: Chip-relateds continue decline amid generally soft equities; Yen strength holds; Focus on ECB rate decision.

General trend

- In Japan, Auto stocks and Export-sensitive sectors lagged on the stronger Yen, as well as No. 2 Nikkei component chip-maker Tokyo Electron falling another 10% in early trading on top of yesterday’s 7% fall, amid global Semiconductor stocks coming under significant pressure following potential new US trade restrictions on chips being sold to China, along with comments from former President Trump about China tariffs going potentially as high as 60-100%.

- Other Asian chip-makers and relateds also fell during the morning: Hynix -4.7%, Samsung -2% TSMC -4%, Renesas -6%, following on overnight from losses in the chip equipment names such as AMAT (US) and ASML (Holland).

- Equities overall in Asia followed the softer US lead, with all indices soft other than the Hang Seng (+0.2%) losing ground today.

- Yen extended its recent gains in early Asian trading, -0.5% against USD and EUR during morning Asian trading. JP 10-yr +3bps to 1.06%.

- Japan had an unexpected trade surplus in June, but weaker components. The Yen halted its rise after the release and clawed back to overnight levels, with USD gaining further strength following comments from former BOJ Director Hayakawa who does not see a rate rise by the BOJ later in July.

- Aussie jobs came in hotter than forecast, with AU 3-yr yields +3bps after the numbers and Aussie dollar coming off its 24 hour lows.

- US equity FUTs +0.2% to +0.3% during Asian trading.

Looking ahead (Asian time zone)

- Thu July 18th (Thu night July 13th US initial jobless, ECB Rate Decision).

- Fri July 19th Japan Jun National CPI, (Fri eve GB Retail Sales).

Holidays in Asia this week

- Mon July 15th Japan.

- Wed July 17th India.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens flat at 8,056.

- Australia Jun employment change: +50.2K V +20.0KE; unemployment rate: 4.1% V 4.1%E.

- Australia Q2 NAB Business Confidence: -1.

- New Zealand sells total NZ$500M vs. NZ$500M indicated in 2029, 2034 and 2037 bonds.

China/Hong Kong

- Hang Seng opens -0.5% at 17,653; Shanghai Composite opens -0.4% at 2,951.

- China Communist Party Central Committee media briefing for Third Plenum is scheduled for Jul 19th [Fri].

- China Jun Swift Global Payments (CNY): 4.6% v 4.5% prior.

- China PBOC issued >$1.7B in relending for housing as of the end of Jun to support the purchase of unsold homes for public housing – PBOC-backed Financial News.

- Reportedly PBOC conducts new survey of regional banks' bond investments - press [overnight update].

- China PBOC sets Yuan reference rate: 7.1285 v 7.1318 prior (strongest fix since July 1st).

- China PBOC Open Market Operation (OMO): Sells CNY49B in 7-day reverse repos; Net injects CNY47B v net injects CNY268B prior.

Japan

- Nikkei 225 opens -1.4% at 40,521.

- Japan Jun trade balance: +¥224.0B V -¥185.7BE.

- Former BOJ Dir Hideo Hayakawa: BOJ likely to 'skip' rate hike later this month - US financial press.

- Japan Outgoing Top FX Diplomat Kanda: If speculators cause excessive moves in FX market we have no choice but to respond appropriately - Japanese press [overnight update].

- Japan sells ¥3.2T vs. ¥3.2T indicated in 12-Month Bills; Avg Yield: 0.1672% v 0.1391% prior; bid-to-cover: 3.94x v 4.70x prior.

- Japan sells ¥350B vs. ¥350B indicated in 5-Year Climate Transition Bonds; Yield at the Lowest Accepted Price: 0.5950% v 0.3390% prior ; bid-to-cover: 4.04x v 3.39x prior.

South Korea

- Kospi opens -1.3% at 2,805.

Other Asia

- Singapore Central Bank (MAS) Chief: Core inflation expected to stay on disinflation path; Will ease more significantly in Q4.

- Indonesia central bank (BI) leaves BI rate unchanged at 6.25%; as expected [overnight update].

North America

- (US) J.D. Vance (R-OH and Trump VP running-mate): Officially accepts Republican nomination for Vice President - speech at Republican National Convention in Milwaukee, WI.

- (US) Former Fed Official Kaplan: Sees rate cut as likely in Sept - financial press.

- (US) Unidos US Official: US Pres Biden tests positive for Covid-19, noted that Biden said he could not appear at the Unidos event.

- (US) Fed's Williams (voter): There is a decision ahead of us on lowering rates; Labor market is not weak; Fed will learn a lot between July and Sept - WSJ.

- (US) MBA Mortgage Applications w/e July 12th: +3.9% v -0.2% prior.

- (BR) Brazil July FGV Inflation IGP-10 M/M: 0.5% v 0.4%e.

- (US) Jun housing starts: 1.353M V 1.300ME (bounce from pandemic lows); building permits: 1.446M V 1.400ME.

- (US) Jun industrial production M/M: 0.6% V 0.3%E; capacity utilization: 78.8% V 78.4%E.

- (US) Fed’s Barkin (voter): The expectation of a recession as needed to slow inflation has not played out.

- (US) Fed's Waller (voter, hawk): Could envision a rate cut in near future; Still will be looking for data over the next two months to buttress views; more upside risk to unemployment than has been seen in a long time.

- Consumers spent +11.7% y/y on first day of Amazon Prime event - Adobe Digital Economy Index.

- (US) DOE CRUDE: -4.90M V 0.0ME; GASOLINE: +3.3M V -1.3ME; DISTILLATE: +3.5M V -0.4ME.

- (US) June Net trailer orders 4.8K units, -17% m/m, +44% y/y - FTRintel.com.

- (US) Treasury $13B 20-year bond reopening draws 4.466% v 4.452% prior, bid-to-cover 2.68x v 2.74 prior and 2.67 over last 8.

- (US) Federal Reserve Beige Book: Economic activity maintained a slight to modest pace of growth in a majority of districts this reporting cycle; expectations for the future of the economy were for slower growth over the next six months.

Europe

- (UK) King's Charles III Speech: UK priority is planning reform, housebuilding; UK govt to legislate to ensure all significant tax and spending changes are subject to independent assessment by OBR; Will legislate to strengthen audit and corporate governance; UK economic policy to be based on stability - comments on first program for UK Labour government.

- (US) Jun housing starts: 1.353M V 1.300ME (bounce from pandemic lows); BUILDING PERMITS: 1.446M V 1.400ME.

Levels as of 01:20 ET

- Nikkei 225 -2.2%; ASX 200 -0.3%; Hang Seng +0.6%; Shanghai Composite +0.2%; Kospi -1.6%.

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

- EUR 1.0931-1.0941: JPY 155.38-156.57; AUD 0.6715-0.6741; NZD 0.6064-0.6185.

- Gold +0.5% at $2,471/oz; Crude Oil +0.5% at $83.40/brl; Copper -0.3% at $4.4040lb.