First Hormuz vessel strike in 10 days, US-KR pressure talks continue

Asia Market: First Hormuz vessel strike in 10 days; US-KR pressure talks continue; JGB yields and UST yields keep rising even as CN yields fall on weak econ data; US Fed Minutes tomorrow.

General trend and developments

-Weak US equities during US trading got even weaker at an accelerated pace during the Asian session. Korea’s Kospi started its week strong following yesterday’s holiday in the manner it finished last week, initially leading Asia +3.6% but later followed US equity weakness to trade at a loss, with the Nikkei under-performing Asia at -2%. All of Asia was soft with the ASX outperforming at flat.

-The fall in equities took place prior to the UKMTO reporting a vessel struck in the engine room by an unknown projectile as it exited the Strait of Hormuz, the first such incident reported in 10 days and coming just a day after the end of the 60-day MOU between US and Iran.

-WTI crude ticked up slightly higher in Asia, but by a lot less than the near 3% overnight rise as Pres Trump threatened military action against Oman, while ending any MOU extension talks with Iran but confirming back channel communications with IRGC officials. In response, a senior Iranian official announced a shift to a “fully offensive policy”, although Iran's Foreign Ministry maintained that the Islamabad Agreement could still be salvaged.

-US-South Korea high-stakes defense & trade negotiations continue to play out in public, mainly via proclamations from Pres Trump, forcing Korea’s hand to respond. In response to Trump significantly curtailing the South Korean-US military drills just hours before they were due to start yesterday, South Korea said it was now in talks with the US on Middle East military contributions. This was followed by reports early in the Asia session that the US had (again) demanded Hynix and Samsung invest in US chip production to be the first Korean investment as part of the US-Korea investment package agreed to last year. South Korea had instead been aiming to initially invest in energy, but it seems that the Trump Admin negotiation tactics is to enforce a full court press approach to get the desired Korean cooperation in chips and foreign policy. Comes as the SK Industry Minister currently in the US for trade talks.

-Japanese yields keep rising across the curve as per US yields, with 5-year JGB yields hitting their highest since the contract started (2.18%) before falling markedly following a well-supported MOF auction today (strongest bid-to-cover for 14 months), driving the yield down 3bps on the day to 2.13%. However, the long-end of the curve remained elevated, with 30 and 40-year yields holding onto 5bps gains. OIS chances of a BOJ rate hike in September remain well bid at ~80%.

-China’s bad economic data released after the close last night saw 10-year bond yields falling further today to 1.67% - heading back towards to early 2025’s record lows below 1.60%.

A Note on China’s worsening structural imbalances, as per the July economic figures release overnight:

-China’s dogmatic playbook of achieving nominal growth targets at all costs continues to come at the expense of the Chinese consumer and domestic businesses.

-There is no shortage of Chinese economists and academics these days recommending direct wealth transfer to the consumer (which still only comprises ~40% of Chinese economic output), leaving the country dangerously dependent on ever-increasing exports to straddle the ocean of overproduction relentlessly churned out by its factories.

-However, as long as China’s CCP places winning its self-defined battle with the West for global domination as its top goal, crushed consumer spending and domestic business spending looks like these segments of society will continue to “eat grass” and be sacrificed the at the alter of GDP growth, with the main escape valve being to export the country’s excess capacity.

-A near-20% drop in Chinese real estate investment during July alongside a severe collapse in private capital underscores that local businesses are essentially frozen, refusing to borrow or expand regardless of how low interest rates may fall.

-The Subsidy Trap has been tripped: Beijing’s extensive campaigns of subsidizing consumer upgrades over recent years has simply pulled past demand forward, rather than creating a sustainable economic engine. Retail Sales have nearly flat-lined as rising unemployment and underemployment (such as part-time gig-economy work) along with falling real estate prices are forcing households into survival hoarding.

-Signs post-data release that the CCP may apply more debt to try and maintain growth targets as China’s NDRC said it will accelerate implementing new policy financing tools and step up support for private investment projects. Indeed, today China’s Ministry of Commerce (MOFCOM) announced measures to stimulate consumer activity and spending power in regional areas, upgrade infrastructure in local commercial centers, farmers' markets, and township commercial facilities and also promote “High-quality supply” by expanding the availability of domestic and international brand products and regional stores in smaller cities.

-For now, the overall tune stays the same in China, with the official Stats Bureau deflecting from structural issues, instead placing the blame on “external uncertainty” and “extreme weather.”

-The weak economic performance provides a rather glum platform for China Pres Xi’s scheduled visit to the US, now locked in as Sept 23rd through Sept 25th. White House visit likely to be Sept 24th. China’s leader may also be keen to spend extra time with Pres Trump, with reports today saying he was forgoing a stop to address UN General Assembly in NY, presumably to spend more time in Washington.

-Indonesian rates also fell today in their first chance to trade since Pres Prabowo’s budget speech late Friday and following Monday’s holiday. The proposed 2027 budget deficit was narrowed to 2.4% of GDP, down from 2.85% projected for 2026 and well below the legal 3% ceiling. Prabowo also struck a pragmatic tone as he pledged to shutter unproductive state-owned enterprises to generate fiscal savings.

-US equity FUTs -0.7% to -0.4% during Asia trading.

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

-Tue night, US July Housing Starts & Pending Home Sales, US July Industrial Production).

-Wed Aug 19th: NZ Q2 PPI Input & Output, JP Jun Core Machinery Orders, AU Q2 Wage Price Index, ID Rate Decision, EU July CPI & Core CPI, (Wed night, IN RBI MPC Meeting Minutes, US FOMC Meeting Minutes).

-Thu Aug 20th: JP July Trade Balance, CN PBoC Loan Prime Rates, AU July Jobs, MY July Trade Balance, (Thu night, ECB Account of Monetary Policy Meeting).

-Fri Aug 21st: KR July PPI, NZ July Trade Balance, AU Prelim Aug S&P Mnfg PMI, JP July National CPI & Core CPI, JP Prelim Aug S&P Mnfg/Svcs PMI, (Fri night: Global S&P PMIs).

Holidays in Asia this week

-Mon Aug 17th: Indonesia, South Korea.

-Fri Aug 21st: Philippines.

Headlines/economic data

Australia/New Zealand

-(AU) ASX 200 opens flat at 9,071.

-(AU) Australia Defense Minister Marles: Agreed deal for Japan to use Australian missile ranges - speaks in Canberra.

-(AU) Australia debt agency (AOFM) confirms pricing of new syndicated 5.00% May 2038 Treasury Bonds, priced at yield-to-maturity of 5.17%.

-(AU) AOFM said to have ~A$62B in demand for 2028 bond syndicate; Australia is expected to sell A$13.0B in the May 2038 bonds - US financial press.

-(AU) Australia Aug Westpac Consumer Confidence Index: 88.9 v 83.9 prior.

-(AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 76.5 v 74.7 prior [highest levels since early-March].

-(AU) BHP.AU Reports FY26 Net $9.83B v $11.0Be; Underlying Net $13.2B v $12.7Be; Rev $58.8B, +15% y/y; notes potential to unlock up to additional $3.5B through active capital portfolio and asset management for WAIO assets.

-(AU) BHP.AU CEO: Has managed to 'work through' strikes in Pilbara without 'material' impact; We are not expecting industrial action at Port Hedland to have any particular negative effect on our performance - post earnings comments.

-(AU) BHP.AU Australia's Combined BHP Ports Union: Parties will meet again on Tuesday 25tth August.

-(NZ) RBNZ: weighs need for structural modernization of system.

-(NZ) New Zealand July Non Resident Bond Holdings: 58.9% v 57.7% prior.

China/Hong Kong

-(CN) Shanghai Composite opens -0.1% at 3,979; (HK) Hang Seng opens -0.3% at 25,369.

-(CN) CHINA JULY RETAIL SALES Y/Y: 0.6% V 1.5%E [EU market close].

-(CN) CHINA JULY INDUSTRIAL PRODUCTION Y/Y: 4.5% V 5.0%E [EU market close].

-(CN) CHINA JULY YTD FIXED URBAN ASSETS Y/Y: -6.7% V -6.2%E [EU market close].

-(CN) China Stats Agency (NBS) Official: China CPI to maintain mild increase in H2; Solid conditions to achieve annual growth target (4.5-5.0%); External environment remains complex; Economic foundation needs to be consolidated; Data was affected by these external uncertainties and extreme weather [EU market close].

-(CN) China July Surveyed Jobless Rate: 5.2% v 5.1%e [EU market close].

-(CN) China July New Home Prices M/M: -0.2% v -0.1% prior; Used Home Prices M/M: -0.3% v -0.3% prior [EU market close].

-(CN) China July YTD Property Investment Y/Y: -19.2% v -18.9%e; Residential Property Sales Y/Y: -13.2% v -13.7% prior [EU market close].

-(CN) China July FX Net Settlement - Clients (CNY-denominated): 171.2B v 391.3B prior [EU market close].

-(CN) China NDRC said to accelerate implementing new policy financing tools and step up support for private investment projects [EU market close].

-(CN) China President Xi to miss UN meeting during Sept trip to US [reason not disclosed] - Politico.

-(CN) China unveils measures to boost consumption in smaller cities [follows the dismal Jul retail sales figures].

-(CN) China press comments on Jul data: Reiterates the economic foundation needs consolidation.

-(CN) China PBOC may use overnight RRPs as core policy tool following the recent liquidity operations; cites 1 analyst - Chinese press.

-(CN) 600519.CN China national team 'ditches' Kweichow Moutai - SCMP.

-(CN) Claims Hegseth ‘on verge of losing job’ raise questions about the future of US-China defense ties; notes growing speculation about the US Pentagon chief - SCMP.

-(CN) Follow Up: China President Xi number 2 [Premier Li Qiang] urges more support for the economy; cites comments made on Monday from Li – US financial press.

-(HK) Hongkong Post ends permanent contracts for n.

-(CN) China Jul final rare earth exports: 10.3kt, -16.9% y/y; YTD rare earth exports at 76.9kt, +7% y/y - updateew workers amid financial strain – SCMP.

-(CN) China PBOC sets the yuan mid-point at 6.7905 v 6.7873 prior.

-(CN) China PBOC Open Market Operation (OMO): Sells CNY0B in 7-day Reverse Repos; Net drains CNY96B v injects CNY199B prior (sixth straight nil injection, seventh time since 2020).

-(CN) China PBOC Open Market Operation (OMO): Sells CNY470B in 1-day Overnight Reverse Repos.

Japan

-(JP) Nikkei 225 opens -0.5% at 68,954.

-(JP) JAPAN SELLS ¥2.5T VS. ¥2.5T INDICATED IN 5-YEAR JGB BONDS; AVG YIELD: 2.1630% V 2.0200% PRIOR; BID-TO-COVER: 4.15X V 3.43X PRIOR (highest bid-to-cover since Jun 2025).

-(JP) Japan 20-year JGB yield rises +2.5bps to 3.835%; Ahead of 5-year JGB auction today, 5-year JGB yield rises +2bps to 2.18%, highest since contract started.

-(JP) Japan considers cloud service for confidential defense data - Asahi.

-(JP) Japan Defense Force jet has problem on runway in Okinawa - NHK.

-(JP) 6976.JP Situational Awareness sold shares of co. to Citadel, others - filing.

Korea

-(KR) Kospi reopens +2.1% at 7,128

-(KR) South Korea's presidential Blue House: reviewing President Trump's comments about scaling back joint military drills. Would continue diplomatic consultations on U.S.-Korea military cooperation related to the Strait of Hormuz while discussing details on joint military drills with the United States. [EU market close].

-(KR) South Korea denies report on discussing chip as 1st US investment - Korea press.

-(KR) US reportedly demands South Korea to first focus on US memory chip facilities in their as yet unannounced investment plans - Joongang.

-(KR) South Korea Pres Lee: Strong defense basis for making an 'irreplaceable' South Korea - Cabinet Meeting.

-(KR) South Korea sells 10-year bonds: Avg Yield: 4.415% v 4.255% prior.

-(KR) South Korea recently eliminated Motif Technologies from sovereign AI project, notes unequal competition in the national AI project - Press.

Other Asia

-(TW) Taiwan plans cash handouts of NT$10.0K per person for 2027 [amid windfall from AI]; cites President Lai Ching-te - update.

-(SG) Singapore and China sign MOU on ‘peaceful” nuclear energy cooperation - update.

-(ID) Indonesia 5-year yield falls to two-month low following budget speech.

-(ID) Indonesia Jun External Debt: $453.4B v $445.0B prior.

-(IN) India Central Bank (RBI) said to be likely selling USD through state-run banks – financial press’.

North America

-(US) US Energy Sec Wright: Plans to speak with US energy companies later today on how to grow refinery throughput; Lowering gasoline prices will come from increasing refinery throughput in the US and internationally - Fox News comments [US market close].

-(CA) CANADA JULY CPI M/M: 0.5% V 0.4%E; Y/Y: 3.0% V 2.9%E [US market close].

-(CA) US and Canada are reportedly discussing a possible reduction in US auto tariffs from 25% to 15% after some value content deductions - press [US market close].

-(US) AUG EMPIRE MANUFACTURING: 20.6 V 10.0E [US market close].

-(US) AUG NAHB HOUSING MARKET INDEX: 35 V 33E [US market close].

-(US) JUN TOTAL NET TIC FLOWS: $133.5B V $132.2B PRIOR; NET LONG-TERM TIC FLOWS: $172.7B V $232.7B PRIOR [US market close].

-(US) US President Trump, Canadian PM Carney held phone call on trade issues on Monday [17th August, 2026].

-(US) US 30-year treasury yield climbs to 5.321% [highest since mid-2007]; JGB yields have also continued to push higher as investors evaluate the prospect for an accelerated pace of BOJ rate hikes; Oil/inflation has, also, remained a focal point.

-(US) Follow Up: Ties to Guggenheim said to weigh on the bonds of insurer Sammons – US financial press.

-(CA) US and Canada trade talks have reportedly slowed down due to auto tariff issue - press.

-(CO) President Espriella: Colombia earthquake has killed 289 people.

Europe

-(TR) Turkey President Erdogan: Discussed bilateral ties, the Iran and Gaza conflicts, and Pakistan/Saudi defense pact with Pres Trump.

-(RU) Local Governor: Warehouse of Russia's Wildberries hit in drone attack on Moscow region.

-(RU) Russia considers aromatic hydrocarbons export ban in order to combat fuel shortages; the move could impact benzene, phenol, toluene and xylenes - Russia press.

-(RU) Russia Foreign Min Lavrov: Russia and North Korea are 'fighting to establish a new world order- North Korea press.

-(UR) Ukraine's Naftogaz: Part of production lost following Russian attacks. Russia has attacked facilities over a dozen times the past week [EU market close].

-(EU) European banks give $300M backing to Scottish data center - Press.

-(UK) Fitch affirmed UK sovereign rating at 'AA-'; Outlook stable [EU market close].

-(UK) Lloyds survey: AI is starting to create jobs in the UK.

-(UK) UK examines economic hit from loss of its access to frontier AI models - FT [citing people familiar with the matter].

-(CZ) Czech July PPI Industrial M/M: 0.3% v 0.1%e; Y/Y: 1.6% v 1.4%e [EU market close].

-(CH) Swiss Weekly Total Sight Deposits (CHF): 458.8B v 462.4B prior; Domestic Sight Deposits: 433.5B v 432.6B prior [EU market close].

-(LY) Libya seeks up to $40B to develop oil resources - FT.

-Zambia: Hilcilema wins re-election with 60% of the vote counted; cites the special electoral body - AP.

Middle East

-(IR) UKMTO: Received a report of an incident in the Strait of Hormuz; Incident resulted in crew casualty [timeframe uncertain].

-(IR) Iran Foreign Ministry spokesperson: Islamabad MOU with U.S did not have 60-day deadline; Talks with Oman continuing but are long due to complexity of subject, multiple actors involved, and countries seeking to undermine process [EU market close].

-(IR) Iran Foreign Ministry: Islamabad Agreement [MOU] has not collapsed and the possibility of returning to it remains - Al Arabiya [EU market close].

-(IR) US Envoy Kushner: Conversations between the US and different areas of Iran government are more robust than it has ever been - Fox News comments [US market close].

-(IR) Pres Trump: Confirms reports that there is backchannel with IRGC officials; Threatens to bomb Oman if it gets in US way - Fox [Iran denies backchannels] [US market close].

-(IR) Senior Iranian Official: Iran has decided to shift policy from defensive to 'fully offensive' [US market close].

-(IR) Strait of Hormuz vessel crossings remain slow, six vessels transiting on Monday - preliminary data (US financial press).

-(SA) Saudi Arabia said to offer crude oil near Oman, refers to the offer to sell oil from off the coast of Oman; ARAMCO declined comment – US financial press.

Levels as of 01:20 ET

Nikkei 225 -2.1%; ASX 200 +0.1%; Hang Seng -0.7%; Shanghai Composite -0.4%; Kospi -1.3%.

Equity S&P500 Futures -0.4%; Nasdaq100 -0.7%; DAX -0.5%; FTSE100 flat.

EUR 1.1586-1.1569; JPY 159.75-159.30; AUD 0.7115-0.7096; NZD 0.5913-0.5878.

Gold -0.5% at $4,395/oz; BTC +1.1% at $64,270; WTI Crude Oil +0.9% at $84.45/bbl; Copper -0.6% at $6.5723/lbs.