CN markets back, kicks off with more rare earth export controls

Asia market update: CN markets back, kicks off with more rare earth export controls; JP markets healthy ahead of LDP coalition talks tomorrow; Israel-Hamas deal moving ahead.

General trend and developments

- China markets back today; Shanghai Composite +1.3%, with a huge net drain of CNY1.45T in the PBOC daily OMO operations post-Golden Week holidays. Offshore Yuan strengthened from 7.15 to dip into the 7.12 handle on a strong 7.11 Yuan fix by the PBOC.

- China had 16.34M cross-border trips recorded during Golden Week holiday period, +11.5% y/y, with overall spending reported to be CNY809B.

- Troubled Hong Kong lender Hang Seng Bank received a privatization proposal from parent HSBC at HK$155.00/share [~30% premium to closing price] with implied EV of HK$290B. The distressed nature of the bank was flagged back in August by HSBC when it noted 73% of Hong Kong commercial property loans as ‘risky’, with much of the exposure related to Hang Seng Bank itself. HSBC -6% as Hang Seng bank gained 15%.

- However, the biggest news came out of China MOFCOM, announcing more export controls on rare earths. Specifically tightening controls for ‘mass destruction’ uses (effective immediately) plus specific permits needed for some rare earths effective from Dec 1st.

- Nikkei up 1.5% to test its record highs earlier in the week post-Takaichi’s LDP leadership win. LDP leaders scheduled to meet with Komeito leaders regarding a new coalition on Friday (tomorrow). Japan Tokyo Average Office Vacancies fell to further multi-year lows.

- Notable further softness overnight in Japan’s 30-year JGB yield following Tuesday’s strong 30-year auction, losing a further -12bps by yesterday’s close down to 3.15%, well below the all-time record of 3.34% leading into the 30-yr auction two days ago. Today JP yield curve largely flat, although 30-years +2bps.

- Another healthy JGB auction today in Japan, with October’s 5-year JGB bid-to-cover meeting its 12-month average.

- Overnight OIS chances of a BOJ rate hike in Oct rose to 26% (vs 21% Tues) and by Dec up to 70% (vs 65.5% Tues).

- Kiwi dollar ended up making three-year lows against the Aussie dollar yesterday after the RBNZ’s 50bp cut and signaling of more potential cuts contrasting with the relatively hawkish RBA outlook last week.

- Australia Consumer Inflation expectations for October came in slightly higher than prior.

- Pres Trump announced that Israel and Hamas have both signed off on the first Phase of the Peace Plan and anticipates all of the Hostages will be released very soon, and Israel will withdraw their troops to an agreed-upon line as the first steps . Israeli govt later said expects hostages to start being released on Saturday, while Trump signaled around Monday. Trump added he may travel to Israel.

- Trump admin reportedly doesn't plan to tariff generic drugs from foreign countries, but could yet change mind.

- The bankrupted US auto parts supplier First Brands threatened to spread as a creditor (likely financing partners Raistone) said to be seeking an investigation as its $2.3B “simply vanished".

- US equity FUTs flat to +0.1% during Asia trading.

Looking ahead (Asian-weighted releases, using Asian time zone)

- Fri Oct 10th NZ Sept Biz PMI, (Fri night Oct Michigan Consumer Sentiment).

Holidays in Asia this week

- Mon Oct 6th China, South Korea, Taiwan.

- Tue Oct 7th China, Hong Kong, South Korea.

- Wed Oct 8th China, South Korea.

- Thu Oct 9th South Korea.

- Fri Oct 10th Taiwan.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens +0.4% at 8,978.

- Australia Oct Consumer Inflation Expectation: 4.8% v 4.7% prior.

- Australia sells total A$150M v A$150M indicated in 2030 and 2050 Indexed Bonds.

- New Zealand Government 12-Month Financial Statements; FY24-25 deficit NZ$9.3B, NZ$869M narrower than forecast.

- New Zealand sells total NZ$450M vs. NZ$450M indicated in 2031 and 2034 bonds.

China/Hong Kong

- Hang Seng opens +0.1% at 26,862; Shanghai Composite reopens +0.4% at 3,898 (first trading day since Sept 30th).

- China MOFCOM announces export controls on rare earth materials.

- Hang Seng Bank (11.hk) *Receives privatization proposal from HSBC at HK$155.00/share [~30% premium to closing price].

- China had 16.34M trips recorded during Golden Week holiday period, +11.5% y/y – CCTV.

- China govt reports Golden Week holiday period spending at CNY809B -press.

- China PBOC sets Yuan reference rate: 7.1102 v 7.1055 prior (Sept 30th).

- China PBOC Open Market Operation (OMO): Injects CNY612B in 7-day reverse repos; Net drains CNY1.45T v drains CNY34B prior (Sept 30th, Net amount based on 7-day and 14-day reverse rep.

Japan

- Nikkei 225 opens +0.7% at 48,065.

- Japan Sept Tokyo Avg Office Vacancies: 2.7% v 2.9% prior [multi-year low].

- Japan releases weekly flows data [period ended Oct 3rd]: Foreign buying of Japan equities: +¥2.48T v -¥961.8B prior; Japan buying of foreign bonds: -¥926.6B v -¥158.7B prior.

- Former BOJ Dep Gov Wakatabe: Believes BOJ can raise rates if economy improves but will struggle justifying another rate hike this year.

- Former BOJ Chief Economist Kameda emphasized the wage outlook is key to BOJ policy - financial press.

- Japan sells ¥3.5T vs. ¥3.5T indicated 6-Month Bills; Avg Yield: 0.5933% v 0.5135% prior, bid-to-cover: 3.14x v 3.99x prior.

- Japan sells ¥2.4t vs. ¥2.4t indicated in 5-yearJGB bonds; AVG yield: 1.2330% v 1.1190% prior, bid-to-cover: 3.69x v 3.70x prior.

- Japan Econ Min Akazawa said to be expected to leave his position [overnight update].

Korea

- Kospi remains closed for holiday (reopens Friday).

Other Asia

- Indonesia 10-year bond yields fall to lowest since Dec 2021.

- Vietnam Govt: Vietnam negotiators to travel to US in Oct, Nov to continue trade talks.

- Thailand central bank (BOT) leaves benchmark interest rate unchanged at 1.50%; not expected [overnight update].

- Taiwan Sept CPI Y/Y: 1.3% v 1.6%e [overnight update].

North America

- (US) Treasury Sec Bessent and Fed Chair candidate meetings said to have concluded on Tuesday - FT.

- (US) Senate Republicans said to consider 'piecemeal' government reopening - Axios.

- Nvidia: US approves AI chip exports (several billions dollars worth) to UAE under existing bilateral agreement - US financial press.

- Follow up: Creditor of bankrupted auto parts supplier First Brands said to be seeking investigation of "vanished" funds; Says "$2.3B simply vanished" - US financial press.

- (US) Fed's Goolsbee (voter for 2025; non-voter in 2026): Labor market remains stable - comments on Fox Chicago.

- (US) Senate Majority Leader Thune has told President Trump to try to limit the fallout from the government shutdown 'as long as possible' - WSJ.

- (US) Trump admin reportedly doesn't plan to tariff generic drugs from foreign countries; Decision isn't final and could change – WSJ.

- (US) Pres Trump: Likely will travel to Israel - Axios reporter via X, followed by Fox News interview.

- (IL) US Pres Trump: Proud to announce that Israel and Hamas have both signed off on the first Phase of our Peace Plan - Truth Social post.

- (CA) Canada PM Carney: There will be some bilateral deals alongside the USMCA.

- (US) MBA Mortgage Applications w/e Oct 3rd: -4.7% v -12.7% prior.

- (CL) Chile Sept CPI M/M: 0.4% v 0.4%e; Y/Y: 4.4% v 4.4%e (annual pace moves back above target range).

- IMF Managing Dir Georgieva: Forecast global growth at ~3% over medium term, down from 3.7% in pre-Covid era; US trade-weighted tariff rate at 17.5%, down from 23% in April 2025.

- (US) DOE CRUDE: +3.7M V +0.7ME; GASOLINE: -1.6M V -1.0ME; DISTILLATE: -2.0M V -0.4ME; US production up 124K bpd w/w to >13.6M.

- (MX) Mexico Pres Sheinbaum: Trade talks with US are going well; Key trade talks be held next week.

- (US) Treasury's $39B 10-year note reopening draws 4.117% V 4.033% prior; bid-to-cover ratio: 2.48 V 2.65 prior 2.59 over last 8 reopening.

- (US) CBO estimated Sept Federal budget balance: $164B V -$344.8B prior.

- (US) FOMC Sept minutes: Most said likely appropriate to ease policy more this year; 'a few' officials saw merit in skipping the September rate cut; some officials noted muted inflation impacts from tariffs versus expectations.

Europe

- (UR) Russian strikes said to have "taken out" ~60% of Ukraine gas production [time frame uncertain] - US financial press.

- (IL) Follow up: Israeli Govt spokesperson: Expects hostages to start being released on Saturday - press.

- (UK) Sept RICS House Price Balance: -15 v -18e.

- (IT) Italy Econ Min Giorgetti: We see if budget deficit to GDP to be below 3% in 2025.

- (HU) Hungary Central Bank (MNB) Sept Minutes: Vote to keep policy steady was unanimous.

- (RU) Russia Dep PM Novak: No need to restrict diesel exports; Russian oil production was close to OPEC+ quota in Sept - Russian state media.

- (PL) Poland Central Bank (NBP) cuts base rate by 25bps to 4.50%; not expected.

- (UK) PM Spokesperson Pares: UK is in advanced discussions with US on pharmaceuticals.

- (PL) Poland Central Bank (NBP): Further decisions to be based on data; Fiscal situation, energy and wages are uncertainty risks; Rate cut today based on better inflation outlook - post rate decision statement.

- (UK) BOE's Pill (chief economist): Inflation expectations have shifted; Seeing structural change in price, wage setting.

- (PO) Poland Fin Min Domanski: Polish interest rates are high - radio interview.

- (FR) France outgoing PM Lecornu: There is a majority in Parliament that is against the dissolution of Parliament; Told Pres Macron that chance of dissolution is becoming more remote; We could have a new PM in 48 hours.

Levels as of 01:20 ET

- Nikkei 225 +1.6%, ASX 200 +0.3%, Hang Seng +0.3%; Shanghai Composite +1.2%; Kospi closed.

- Equity S&P500 Futures flat; Nasdaq100 +0.1%; DAX +-.1%; FTSE100 -0.4%.

- EUR 1.1624-1.1649; JPY 151.41-152.76; AUD 0.6580-0.6611; NZD 0.5780-5807.

- Gold -0.4% at $4,056/oz; BTC +0.4% at $122,000; Crude Oil -0.5% at $62.26bbl; Copper +1.5% at $5.1550/lb.