CN hits back at US by considering its own AI restrictions

Asia market update: CN hits back at US by considering its own AI restrictions; US-IR strikes escalate, even as talks appear to continue; RBNZ hikes first time in 3 years.

General trend and developments

- Hong Kong equities outperformed Asia, with the Kospi again volatile. Hang Seng +2% pulled up by the HK Tech Index +4% (Alibaba + 7%, Zhipu +18%, Tencent +4%, Baidu +5%, Hua Hong +9%, SMIC +4.7%). AI and chipmaker names were broadly up in China after Chinese authorities reportedly have been holding meetings with top China tech firms over the past month about potentially restricting overseas access to China's most advanced AI models; Flipping the script on the US govt’s decision last month to restrict foreign-national access to Anthropic’s Fable 5 / Mythos 5 models - and subsequent safeguards limiting frontier model access (including OpenAI's new GPT5.6 Sol model, now approved for release by the US govt).

- Zhipu particularly strong +18% as it joined compatriot AI model maker DeepSeek in reportedly planning to build domestically its own custom AI chips for its popular GLM model.

- Oil prices stayed at elevated levels in Asia after having moved up >$3 during the NY morning, following several fresh incidents (including the Qatari LNG tanker still on fire and at risk of explosion) in the Strait of Hormuz. The Iranian attacks led to the US Treasury revoking the June 21st allowance for sales of Iranian oil, followed later by powerful US strikes on Iranian ports, IRGC air defense facilities and >60 small fast boats. Iran kept up its fighting talk, as it once again sent drones and missiles into Bahrain and Kuwait. However, no sign yet that either side is planning to officially end the ceasefire and negotiations.

- New Zealand’s RBNZ as expected raised rates for the first time in over three years (by 25bps) but with dampened inflation expectations due to the recent fall in oil prices. The Statement did warn that some further reduction in monetary stimulus is likely to be required to return inflation to the 2% target mid-point.

- Japan reportedly considering changes to monetary policy wording in its pending 2026-27 annual economic and fiscal management plan in order to affirm independence of the BOJ [Note: Contrary to reports in late June).

- JPY again weaker, heading back towards last week’s 40-year lows vs USD even as new BOJ board member Asada moved from his dissenting stance at last month's BOJ hike to now be “not opposed to rate hikes”, adding the BOJ should respond flexibly to changes in economic, price and financial conditions. Comments come as CFTC overall net short Yen positions at ~155K contracts approach the record level of ~184K contracts seen in July, 2024, just prior to the rapid Yen appreciation from 162 to 140 at the time, roiling markets worldwide as a chunk of the Yen carry trade rapidly unwound. [Some analysts speculate it is the pace of Yen weakness that may lead to further BOJ “Yentervention” rather than any specific FX level - and perhaps now to come suddenly without verbal warnings as has been the custom since BOJ FX interventions started up again in late 2022].

- South Korea’s current account surplus hit a record high in May.

- Australia’s Telecom index -1.8% as Telstra fell up to -4% on a nationwide network outage (cause still not known).

- Further concrete signs Nvidia is looking to move up the AI stack, including at the model layer by announcing a partnership with AI chip startup d-Matrix to combine hardware in a new system to power AI models.

- Despite SpaceX being added to the Nasdaq-100 index in US trading overnight, triggering billions of dollars in institutional buying by funds correlated to the Nasdaq 100, the stock fell -5% to its post-IPOs lows - barely holding $150. Analysts cited heavy algorithmic front-running ahead of the known event for the lack of a price boost, amid a public float of only 4-5%.

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

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

- Mon July 6th: (Mon night, US Jun S&P/ISM Services/Composite PMI).

- Tue July 7th: JP 30-Year JGB Auction, UK BoE MPC Meeting Minutes, (Tue night, US May Trade Balance).

- Wed July 8th: KR May Current Account, JP May Current Account, RBNZ Rate Decision, (Wed night, US 10-Year Note Auction, US FOMC Meeting Minutes).

- Thu July 9th: CN Jun CPI/PPI, JP 5-Year JGB Auction, MY Rate Decision, (Wed night, EU ECB Meeting Minutes, US Jun Existing Home Sales).

- Fri July 10th: JP Jun PPI, US IEA Monthly Report.

Holidays in Asia this week

-Fri July 10th: New Zealand.

Headlines/economic data

Australia/New Zealand

-(AU) ASX 200 opens -0.8% at 8,730

-(NZ) New Zealand central bank (RBNZ) raises official cash rate (OCR) BY 25BPS to 2.50%; as expected; some further reduction in monetary stimulus is likely to be required to return inflation to the 2% target mid-point; Lower NZD may add to medium-term inflation pressures.

-(AU) RBA Assist Gov (Econ) Hunter: The Board will continue to act as needed to ensure inflation returns to target and the labor market to sustainable full employment - Speech at the Australian Conference of Economists 2026.

-(AU) Australia consults on minimum tax on discretionary trusts - Statement.

-(NZ) RBNZ Gov Breman: The Monetary Policy Committee agreed by consensus to increase the OCR by 25 basis points to 2.50%; RBNZ will fully unwind its large-scale asset program holdings by June 2027 and sell a small residual bond holding early to bring forward the final stages of balance sheet normalization. - post-rate decision press conference.

China/Hong Kong

-(CN) Shanghai Composite opens +0.2% at 3,996; (HK) Hang Seng opens +0.2% at 23,541.

-(CN) Chinese authorities said to have held meetings with top tech firms over the past month about potentially restricting overseas access to China's most advanced AI models, including those yet to be released - press [EU market close].

-(CN) Follow Up: Chinese press has flagged efforts to develop AI chips [follows the recent news regarding AI chips and DeepSeek and Zhipu].

-(CN) DEEPSEEK said to be developing its own AI chip to reduce reliance on Nvidia, Huawei chips; To be used for inference rather than training AI models - press [EU market close].

-(CN) For the first time Mainland China court claims jurisdiction over Hong-Kong listed company investor lawsuit – SCMP.

-(CN) China PBOC sets the yuan mid-point at 6.8077 v 6.8054 prior.

-(CN) China PBOC Open Market Operation (OMO): Sells CNY15B in 7-day Reverse Repos; Net drains CNY85B v drains CNY60B prior.

Japan

-(JP) Nikkei 225 opens -0.8% at 67,704.

-(JP) Japan reportedly considers changes to monetary policy wording in the 2026-27 annual economic and fiscal management plan ("Honebuto no Hoshin") in order to affirm independence of the BOJ [Note: Contrary to reports in late Jun) - Asahi.

-(JP) BOJ New Board Member Asada: Not opposed to rate hikes; The BOJ should respond flexibly to changes in economic, price and financial conditions [EU market close].

-(JP) Japan May Current Account Balance: ¥3.968T v ¥4.111Te.

-(JP) Japan-US-South Korea Foreign Ministers held meeting in Turkey NATO Summit.

-(JP) Japan 20-year JGB yield rises +4.0bps to 3.85% (highest since July 1996).

-(JP) Japan 10-year JGB yield rises +1.5bps to 2.855% (highest since Oct 1996).

-(JP) Follow up comments: BOJ New Board Member Asada: A rate hike could slow the economy - Sankei Shimbun.

-(JP) Japan Jun Bank Lending Y/Y: 5.7% v 5.7% prior.

-(JP) Japan Jun (whole month) Foreigners sold Net ¥2.991T of Japanese stocks.

-(JP) Japan set aluminum premiums for July-September shipment at $395/ton, +12-13% q/q.

-(JP) Exposure to Zentoshin [credit card payment processor] bankruptcy has weighed on regional banks in Japan – US financial press.

-(JP) Japan Jun Eco Watchers Current Survey: 44.0 v 44.2e.

Korea

-(KR) Kospi opens -2.7% at 7,452.

-(KR) Follow up: South Korea Fin Min Koo: South Korea to provide $100M aid for Ukraine - Comments following Turkey NATO Summit meeting.

-(KR) South Korea May Current Account Balance: $38.6B v $28.3B prior.

-(KR) US said to send RFI (Request for Information) to South Korean shipbuilders - Korea press.

-(KR) Follow up: South Korea said to mandate ESG disclosures for large-listed companies from 2028 - US financial press.

-(KR) South Korea's youth saving scheme attracted 2.34M applicants - US financial press.

Other Asia

-(TH) Thailand Central Bank (BOT) Jun Minutes.

-(PH) Philippines May Unemployment Rate: 4.8% v 4.7% prior.

-(ID) Indonesia Stock Exchange: Will engage in communication with S&P Dow Jones indices to delve into the concerns raised.

-(ID) Indonesia Jun Consumer Confidence: 117.8 v 120.9 prior.

-(ID) Indonesia to sell up to IDR10.0T in Islamic bonds (Sukuk) on Tues, July 14th, 2026.

North America

-(US) May Trade Balance: -$77.6B v -$78.4Be [US market close].

-(US) Fed's Williams (moderate, voter): Retreat in energy prices is good news and should help inflation; Likely near peak impact of tariffs [US market close].

-(US) OPENAI.IPO Trump Administration has lifted restrictions on OpenAI's GPT 5.6 - Axios (as expected).

-(US) OPENAI.IPO Confirms GPT-5.6 Sol will launch publicly this Thursday (9th July, 2026).

-(US) NVDA Announces partnership with AI chip startup d-Matrix to combine hardware in a new system to power AI models - The Information.

-(US) USDA Officials called grocers including Walmart, Kroger and Albertsons regarding beef prices ahead of July 4th weekend - WSJ.

-(US) State of Oregon AG requests court to order Paramount to comply with investigative demands related to merger - Court Filings.

-(US) Treasury's $58B 3-Year Note Auction Results: Draws 4.179% v 4.192% prior; BTC 2.60x v 2.64x prior and 2.63x over the last 9 auctions [US market close].

-(US) June NY Fed 1-year inflation expectations 3.67% v 3.46%e [US market close].

-(US) Weekly API Crude Oil Inventories: -0.4M v -6.1M prior.

-(CA) Canada Jun Ivey Purchasing Managers Index: 56.2 v 58.2 prior [US market close].

-(BR) Brazil Jun FGV Inflation IGP-DI M/M: -0.8% v -0.6%e; Y/Y: 3.6% v 3.8%e [US market close].

-(CO) Colombia Jun CPI M/M: 0.4% v 0.4%e; Y/Y: 6.1% v 6.1%e.

-(VE) Venezuela Interim President Delcy Rodriguez has designated 'Calixto Ortega Sanchez' for President of the Bank of Venezuela.

Europe

-(FR) Marine Le Pen found guilty of embezzlement by Paris appeals court but cleared to run in 2027 presidential elections; Court order Le Pen to wear electronic tag [**TTN Note: Le Pen had said she would not run in 2027 if ordered to wear one] [EU market close].

-(UK) Reform UK Leader Farage: Will resign as MP, triggering a by-election in which I will stand in; I have not broken the law and misused public money; Establishment have decided to use foul means against me - (Note: Reform party is leading UK voting polls) [EU market close].

-(FR) France Govt said to cut 2026 GDP growth forecast from 0.9% to 0.7% [EU market close].

-(UK) BOE Financial Stability Report (bi-annual): Vulnerabilities rise with Middle East shocks and AI leverage; AI credit use accelerated rapidly in public, private and structured finance with uncertain long-term earnings prospects that could trigger falls amplified by leverage [EU market close].

-(UK) BOE Gov Bailey: FPC is particularly concerned that existing risks to financial stability could crystallize simultaneously [EU market close].

-(NL) Netherlands May Consumer Spending Y/Y: 1.8% v 1.0% prior.

-(SE) Sweden Jun Maklarstatistik Housing Prices: 2.9% v 2.2% prior.

Middle East

-(US) CENTCOM: Completed new round of retaliatory strikes; Struck more than 60 IRGC small boats in and near the Strait of Hormuz; Ready to hold Iran accountable when agreement not obeyed - post on X (update).

-(IR) US CENTCOM: Confirms a series of strikes on Iran in response to Iranian attacks on three commercial vessels transiting the Strait of Hormuz; Iran's aggression was a violation of the ceasefire - X post.

-(IR) US Treasury amends and revokes the June 21st Iran-related general license that allowed sales of Iranian oil; US negotiators will continue to work in good faith toward a final deal with Iran [US market close].

-(US) Sec of Defense Hegseth planning to make 'first' visit to Israel on Wednesday (8th July, 2026) - CNN [citing three people familiar with the situation].

-(US) White House Official: White House has invited Lebanon's President Aoun to visit on July 21st (2026).

-(IR) Follow up: Trump said to have approved Iran strike plan whilst in Turkey - Axios [citing US Official].

-(IR) Iran Foreign Ministry: Condemns US Treasury move to revoke temporary suspensions of sanctions; US military operations against Iran violate the MOU.

-(IR) US strikes had targeted Iranian air defense systems, coastal surveillance systems, surface-to-air missiles, anti-ship cruise missiles, and drone launch sites - Axios.

-(IR) Follow up: Iran's [Semi-official] Fars News Agency: Black smoke behind Bandar Abbas fish market caused by 'enemy projectiles' hitting fishing pier, setting fire to several civilian fishing boats.

-(IR) Iran military launched drone at Bahrain - Axios [citing US official].

-(IR) Iran press reports renewed explosions on Qeshm Island; Several blasts heard on Kharg Island.

-(IR) Explosions heard in Qeshm Island and Bandar Abbas in southern Iran - Iran media.

-(IR) Iranian Official: Traffic through the Strait of Hormuz is conducted in accordance with Iran's arrangements [EU market close].

-(IR) Iran Foreign Ministry: Rejects Qatar claim about vessel attack; Iran is diligently fulfilling its commitments under the MOU to take measures to manage the Strait of Hormuz [EU market close].

-(IR) UKMTO: Received report of a new incident in Strait of Hormuz; Tanker was struck by a projectile causing structural damage but no casualties [US market close].

-(QA) Qatar Foreign Ministry: Targeting Qatari tanker while passing near Strait of Hormuz constitutes rejected 'aggression' against security and safety of international navigation [US market close].

-(IQ) Iraq said to boost West Qurna 1 and Rumaila oil output to full capacity [EU market close].

-(KW) Kuwait Army: Sirens sounded in Kuwait; Air defenses responding to missile, drone attacks - State News Agency.

-(KW) Kuwaiti Electricity Ministry: Several power transmission lines out of service, causing outages in parts of country [reason not initially disclosed].

Levels as of 01:20 ET

Nikkei 225 -0.9%; ASX 200 -0.4%; Hang Seng +2.6%; Shanghai Composite +0.3%; Kospi -5.6%.

Equity S&P500 Futures flat; Nasdaq100 +0.1%; DAX -0.2%; FTSE100 -0.1%.

EUR 1.1419-1.1399; JPY 162.46-161.97; AUD 0.6947-0.6920; NZD 0.5717-0.5673.

Gold +0.5% at $4,124/oz; BTC -0.5% at $62,818; WTI Crude Oil +3.4% at $72.81/bbl; Copper +0.4% at $6.2067/lbs.