Asian equities mixed as Nikkei hits 40K again, while Yen hovers at 38-year lows

Asia market update: Asian equities mixed as Nikkei hits 40K again, while Yen hovers at 38-year lows; CN bond yield rally over?; RBA Minutes stay the course; Focus on US Fed Powell and US May JOLTS.

General trend

- Asian equities traded trading mixed and tentative after having closed mostly higher on Monday. However, Japan equities moved up strongly in the afternoon session, hitting 40,000 points for the first time since Apr 4th, on the increased yield of Japanese bonds following the 10-year JGB auction. TOPIX Banks index +1.6%. This week will see illiquidity due to the July 4th US holiday (and a shortened trading day on July 3rd) and tonight sees upcoming remarks by Fed Chair Powell.

- Japan’s 10-year JBG auction was reasonably well supported but what caught the eye was the haverage yield of 1.093%, the highest yield at auction since ~2011. JP 10-yr yields +2bps to 1.0840%.

- Korean 3-yr yields -4.7bps went against the global trend, with earlier the Bank of Korea commenting on the June CPI as 'positive' that inflation has slowed to the mid-2% level; (Today South Korea June CPI remained above target but was slowest y/y pace for 11 months).

- Late yesterday, after China 10-yr bond yields had fallen to another record low below 2.2%, the China PBOC announced that it would start to borrow government bonds from certain primary dealers in order to maintain steady operation of the bond market. The Central Bank stated, "In order to maintain the sound operation of the bond market, the People's Bank of China (PBOC) decided to borrow China government bonds from primary dealers of open market operations in the coming period, based on prudent observation and assessment of the current market situation". Citic Securities analysts saw the potential for the PBOC to start selling central government bonds via open market operations as soon as this week. CN 10-yr bond yields +3bps on the news. SSE Banks +1.2% and mainland HK Banks index +1.7%.

- In Australia, the RBA June Minutes reiterated that it is difficult to rule in or out future cash rate changes. Meanwhile, Roy Morgan’s Weekly Consumer Inflation expectations recorded its largest weekly rise in 9 months.

- New Zealand economic data continues to be poor: NZIER reported that in Q2 Business Confidence fell to -44% compared to the last quarter (which itself was -25% q/q). In one potential bright spot, only a net 10% of firms expect trading to worsen in the current Q3. NZIER specifically called out the building sector as remaining the most downbeat, backed up by today’s NZ building permits release, down again for the month.

- The Yen continued hovering down at 38-year lows, with Japan Fin Min Suzuki yet again declining to comment on FX levels and merely saying he was closely watching FX moves with “vigilance”.

- Former President's campaign got another boost from the US Supreme Court, which decided Trump's various immunity claims were either valid or needed further deliberation in the lower courts, virtually assuring none of the pending trials against him will go forward before the election.

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

Looking ahead (Asian time zone)

- Tue July 2nd (Tue eve EU Jun CPI flash, Tue night US Fed Powell, US May JOLTS).

- Wed July 3rd AU May prelim Retail Sales, CN Jun Caixin Services PMI (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 flat at 7,751.

- RESERVE BANK OF AUSTRALIA (RBA) JUN MINUTES: ECONOMIC PATH CONSISTENT WITH CPI RETURN TO TARGET IN 2026.

- Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 81.3 v 80.4 prior (Inflation expectations also recorded its largest weekly rise in 9 months).

- New Zealand May Building Permits M/M: -1.7% v -2.1% prior.

China/Hong Kong

- Hang Seng opens -0.3% at 17,669 (post-holiday); Shanghai Composite opens -0.1% at 2,992.

- (JP) Japan sells ¥2.6T VS. ¥2.6T indicated in 10-year JGB bonds; AVG YIELD: 1.0930% V 1.0480% prior; bid-to-cover: 3.23X V 3.66X prior.

- TTN Research Alert: China bond rally to end on PBOC borrowing of govt bonds to then sell via open market ops?

- PBOC may cut the RRR as bond supply increases – China Press [inline].

- China Vice Premier Li Qiang: China will further expand market access and break unreasonable limits for foreign investment [overnight update].

- Chinese mutual funds have reportedly asked bond brokers to lower trading fees – press [overnight update].

- Citic Securities analysts see PBOC could begin to sell central government bonds via open market operation as soon as this [overnight update].

- China PBOC said to decide to borrow government bonds from certain primary dealers in order to maintain steady operation of the bond market – US financial press [overnight update].

- China PBOC sets Yuan reference rate: 7.1291 v 7.1265 prior.

- China PBOC Open Market Operation (OMO): Sells CNY2B in 7-day reverse repos; Net drains CNY298B v net drains CNY48B prior.

Japan

- Nikkei 225 opens -0.2% at 39,543.

- Nikkei 225 rises above 40K during afternoon trading (first time since Apr 4th); TOPIX Banks index +1.6%.

- Japan Jun Monetary Base Y/Y: 0.6% v 0.9% prior (multi-year low).

- Japan Fin Min Suzuki: Declines comment on FX levels; closely watching FX moves with vigilance.

South Korea

- Kospi opens -0.2% at 2,798.

- South Korea Jun CPI M/M: -0.2% V 0.1%E; Y/Y: 2.4% V 2.6%E (slowest y/y rise since July 2023).

- South Korea: Liquidity during extended FX trading hours was favorable.

- North Korea successfully conducted new tactical ballistic missile on Monday, July 1st - state media.

Other Asia

- Thailand Finance Ministry: End-May debt-to-gdp ratio: 64.3% (v 63.8% m/m).

North America

- Cuba's expansion of electronic eavesdropping stations may be linked to China, referencing a report with satellite imagery -- WSJ.

- (US) NHC update on Hurricane Beryl: Potentially a catastrophic Category 5 Hurricane in the Eastern Caribbean; Now officially the first Cat 5 Hurricane in the Atlantic before mid-July.

- (US) Pres Biden on today's US Supreme Court ruling on Pres Trump's immunity claim.

- (US) Pres Biden reportedly has "zero interest in stepping aside"; First Lady Jill Biden and key family members and friends agree; Biden may hold a town hall or big one-on-one interview in July - axios citing person who talks regularly with Biden and his family.

- (US) Fed's Williams (voter): US experience with inflation has been mirrored in other countries.

- (US) Jun final S&P Manufacturing PMI: 51.6 V 51.7E.

- (US) May construction spending M/M: -0.1% V 0.2%E.

- (US) Jun ISM manufacturing: 48.5 V 49.1E; prices paid: 52.1 V 55.4E; New Orders: 49.3 v 45.4 prior.

- (US) Supreme Court partially backs Trump's immunity claim; Vote 6-3; Mixed ruling will potentially further delay any federal trial.

- (MX) Mexico Jun Manufacturing PMI: 51.1 v 51.2 prior (9th straight expansion).

- (US) Atlanta Fed GDPNow: Cuts Q2 GDP forecast to 1.7% from 2.2%.

Europe

- (UK) Jun British Retail Consortium (BRC) LFL Sales Y/Y: 0.2% v 0.5%e [slowest pace since 2021].

- (DE) Germany Jun preliminary CPI M/M: 0.1% V 0.2%E; Y/Y: 2.2% V 2.3%E.

- (EU) ECB’s Nagel (Germany): Germany needs to invest to boost economic growth'; `some rays of hope' for German economy - speech text.

- (SA) Saudi Energy Minister announces discoveries of multiple oil and gas fields.

- (IT) Italy Jun New Car Registrations Y/Y: +15.0% v -6.6% prior.

- (EU) ECB's Simkus (Lithuania): Case for July rate cut has gone; Doesn't see disorderly moves in French bonds.

- (EU) ECB’s Wunsch (hawk, Netherlands): Reiterates first 50bps of rate cuts are relatively easy; July an option in theory, in practice must be cautious.

Levels as of 01:20 ET

- Nikkei 225 +1.2%, ASX 200 -0.3%; Hang Seng +0.5%; Shanghai Composite +0.2%; Kospi -0.8%.

- Equity S&P500 Futures: -0.2%; Nasdaq100 -0.4%, Dax -0.3%; FTSE100 -0.3%.

- EUR 1.0730-1.0741; JPY 161.64-161.75; AUD 0.6634-0.6661; NZD 0.6048-0.6180.

- Gold flat at $2,338/oz; Crude Oil +0.2% at $83.53/brl; Copper -0.2% at $4.4085/lb.