Equities higher as China

Asia Market Update: Equities higher as China and US hold off on tariffs as parties return to the table for trade talks

General Trend:

- US equity futures opened higher as US Treasury Sec Mnuchin said the previously announced tariffs on China would be halted as talks continue

- Asian equities generally track the strength in US futures

- Hang Seng Utilities index rises over 2%; China’s Xi commented on fight against pollution

- Aluminum producer Rusal rallies over 5%; London Metals Exchange (LME) said to seek to lift ban on some of the co.'s products (HK Press)

- US Agricultural commodities rise after Mnuchin’s comments on China; Soybean Futures up over 2%

- Japan exports rebound in April, trade surplus with the US widens

- Japan PM Abe Cabinet approval ratings rebound off of recent lows, say multiple press polls

- New Zealand Q1 retail sales grow at slowest q/q pace since 2015; Kiwi and bond yields decline

- AUD/JPY outperforms; China is Australia’s largest trading partner

- Asian currencies trade generally weaker: Rupiah declines further despite intervention threat

- Indonesia 10-yr bond yield rises over 15bps

- Equity markets in Hong Kong and South Korea to be closed for holidays on Tuesday

 

Headlines/Economic Data

Japan

-Nikkei 225 opened 0.0%; closed +0.3%

- TOPIX Information & Communications index +0.7%, Securities +0.4%; Marine Transportation -1%, Iron &Steel -1%, Real Estate -0.4%

- (JP) JAPAN APR TRADE BALANCE: ¥626B V ¥440BE; ADJ ¥550B V ¥115BE; Exports y/y: 7.8% v 8.7%e (17th straight rise); Imports y/y: 5.9% v 9.8%e

- (JP) Japan's largest banks sell record super long JGBs in April – JSDA

- (JP) Japan targeting primary balance surplus by FY25 (inline with prior announced expected delay) – Nikkei

- (JP) Japan FSA asked regional banks to limit their unrealized losses on securities investments to the amount of profits on core lending business – financial press

Korea

-Kospi opened +0.1%

- (KR) South Korea Apr PPI m/m: 0.1% v 0.0% prior; y/y: 1.6% v 1.3% prior

- (KR) South Korea May 1-20 Exports Y/Y: +14.8% v 8.3% prior; Imports Y/Y: +10.7% v 20.8% prior

- (KR) South Korea parliament approves KRW3.8T extra budget, will make use of an extra budget as soon as possible to create new jobs for young people and help industrial regions grappling with massive layoffs

- (KR) South Korea sells KRW 824B in 20-yr treasury bonds; avg yield 2.76%

- (KR) Multiple reporters from South Korea said to head to North Korea nuclear testing site - Yonhap [Reminder: On May 13th, it was reported that North Korea was said to be planning to dismantle its nuclear test site at a ceremony planned for May 23-25th (Korean press)]

China/Hong Kong

-Hang Seng opened +0.6%, Shanghai Composite +0.4%

- Hang Seng Utilities index +2.1%, Industrials Goods +1.7%, Info Tech +1.6%, Services +1.4%, Financials +1.2%

- (CN) China agrees to purchase more US goods in effort to avoid trade war, but refuses to commit to US demand to narrow trade gap by $200B

-(US) Treasury Sec Mnuchin: planned tariffs on Chinese steel and aluminum, as well as $150 billion worth of other Chinese goods, would be put on hold as talks with China proceed - press

- (US) US Trade Rep Lighthizer said the US may still resort to tariffs and other tools, including investment restrictions and export regulations unless China makes real structural change to its economy

– US financial press

- (CN) Analysts warn that addition of 234 China companies to MSCI will not have as big of impact as being claimed – SCMP

- (CN) China Iron & Steel Industry Association: By 2025 crude steel production capacity will be reduced to 10B tons

- (CN) China power companies said to have asked units to avoid buying coal at current high prices - China Daily

- (CN) China PBoC Open Market Operation (OMO): Skips OMO for second consecutive session; Net injection nil v nil prior

-(CN) China to boost the role of price based monetary targets with interest rates as core - press citing 2016-2020 plan for financial sector

- (CN) China PBoC sets yuan reference rate at 6.3852 v 6.3763 prior

Australia/New Zealand

-ASX 200 opened 0.0%, closed -0.1%

- ASX 200 Utilities index +1.1%, Consumer Discretionary +0.5%; Telecom -1.4%, Resources -0.3%, Financials -0.2%

-AGL, [+1.1%], AGL.AU Rejects offer from Chow Tai Fook and Alinta for Liddell; offer is not in best interest of AGL or shareholders; Affirms decision to close Liddell in Dec 2022

- (NZ) NEW ZEALAND Q1 RETAIL SALES EX-INFLATION Q/Q: 0.1% V 1.0%E (weakest reading since Q2 2015); Y/Y: 3.0% V 4.8% PRIOR

-Santos, [+3.5%], STO.AU Advises shareholders to take no action on $5.21/shr ( A$6.95/shr) $10.9B offer from Harbour Energy (above prior offer of $4.98/share); Harbour Energy: Most recent proposal for Santos is 'best and final' - AFR

- (AU) Australia sells A$400M v A$400M indicated in Nov 2022 bonds, avg yield 2.4172% v 2.4294% prior, bid to cover 7.11x v 6.08x prior

- HT&E, [-2%], HT1.AU oOh!Media confirms made a revised offer for Adshel at A$470M cash, offer has not been accepted or rejected yet; HT1.AU oOHMedia offer is not the most attractive, have offered to engage on the offer

Other Asia

- Institute of International Finance (IIF): Currently many emerging markets are more exposed to the appreciation of the US dollar (USD)

- (TH) Thailand Q1 GDP q/q: 2.0% v 1.2%e; y/y: 4.8% v 4.0%e

- (ID) Indonesia Central Bank: To hold 3 FX swap auctions this week: to ensure ample liquidity in interbank market

North America

- TSLA Announces reduction of delay in Model 3 deliveries to 4-6 months (prior 12-18 months) - press

- GE [GE]: Said to be near deal to merge transportation unit with Wabtec [WAB]

- (US) Treasury Sec Mnuchin: President Trump is more interested in striking a good deal with Canada and Mexico than quickly finishing NAFTA talks in order to get a vote from Congress this year - press

- (US) Trump Lawyer Giuliani said Special Counsel Mueller plans to complete obstruction inquiry into the President by Sept 1 – NYT

- (US) US DoJ Spokesperson: Requested expanded review of surveillance application process to determine if there were political motivations in the FBI Russia probe of Trump

Europe

- (UK) Foreign Sec Johnson calls on MPs to give PM May more time and space to deliver on her Brexit promises - UK press

- (UK) May Household Finance Index: 44.7 v 43.4 prior (highest level since Dec 2016)

- (UK) May Rightmove House Prices m/m: 0.8% v 0.4% prior; y/y: 1.1% v 1.6% prior

 

Levels as of 02:00ET

- Hang Seng +1.2%; Shanghai Composite +0.7%; Kospi +0.2%

- Equity Futures: S&P500 +0.6%; Nasdaq100 +0.8%, Dax closed; FTSE100 +0.6%

- EUR 1.1779-1.1744; JPY 111.29-110.76; AUD 0.7533-0.7511;NZD 0.6932-0.6891

- Jun Gold -0.4% at $1,286/oz; Jul Crude Oil +0.7% at $71.88/brl; Jul Copper +0.8% at $3.08/lb