Iran nuclear concerns along with US vs World trade tensions resurface to spoil equity party

Asia Market Update: Iran nuclear concerns along with US vs World trade tensions resurface to spoil equity party and hike crude oil prices; US May PPI tonight.

General trend

- USD and risk assets weaker as Pres Trump confirms US personnel being moved out of parts of the Mid-East in relation to worsening Iran nuclear talks, while also imposing up to 2-week deadline for unilateral tariff rates, "Take it or leave it". USD/JPY and USD/EUR -0.3% with Euro to fresh 7-week high of >$1.1525. WTI Crude up to early April levels, $68.80, extending its biggest daily gain since Oct 2024. Gold also gained 1.5% to be within striking distance of $3,400/oz again.

- Middle East tensions partly ameliorated later by US envoy Witkoff reported to meet Iranian Foreign Min Muscat on Sunday, coming on top of further reports Israel said to be 'fully ready' to launch an operation in Iran.

- In related US-CN trade news, US consumer staple Bunge now said to be in final stages of receiving China approval for its $8.2B Viterra deal.

- Meanwhile Japanese political leader Maehara spilled the beans that PM Ishiba, while providing opposition party leaders information about the state of US-Japan trade talks, apparently said there is a "major gap" in stance between the US and Japan.

- China PBOC set the strongest Yuan fix since Apr 2nd, coming back full circle since the Trump tariff “Liberation Day” announcement, as CNH strengthening to test below the 7.18 handle against USD.

- Kospi yet again outperformed a mixed equities session in Asia, although only up +0.3% but heading for its 7th straight winning session and more than three year highs since the Presidential election Tuesday last week.

- OIS chances of a Japan BOJ 25bps hike in July fell to 8% from 13% yesterday, with an Oct hike falling to 49.5% from 56% yesterday. Comes after yesterday the Japan MOF saying that 'July' bond buyback speculation was 'Unrealistic" and overnight PM Ishiba saying that he was against further deficit funding of JGB bonds, and will also not agree on reducing consumption tax.

- Japanese bond futures lost earlier gains, with financial press reporting that JGB futures players were busy rolling over from the June contract to September. [The last trading day for the June contract is Friday].

- Japan’s large BSI Q2 All Industry and Manufacturing sentiment worsened for the first time in five quarters. On a slightly brighter note Japan May Tokyo Average Office Vacancies continued to forge fresh multi-year lows.

- Australia’s Jun Consumer Inflation Expectations reached 5.0%, highest since July 2023.

- Oracle +7.5% after hours, beating Q4 ests and raising FY26 forecast.

- US May PPI tonight.

- US equity FUTs -0.3% during Asian trading.

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

- Thu Jun 12th IN May CPI, (Thu night US May PPI).

- Fri Jun 13th NZ May PMI (Fri night US Jun Michigan Consumer Sentiment).

Holidays in Asia this week

- Mon Jun 9th Australia, Indonesia.

- Thu Jun 12th Philippines.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens -0.1% at 8,589.

- Australia Jun Consumer Inflation Expectation Survey: 5.0% v 4.1% prior [highest since Jul 2023].

- APRA proposes to change capital framework for annuity products.

- Pentagon said to launch review to decide if US should scrap AUKUS – FT.

- New Zealand May Total Card Spending M/M: +0.3% v -0.2% prior; Retail Card Spending M/M: -0.2% v 0.0% prior.

- NZ Govt expects primary exports to rise by 12% in 2025.

China/Hong Kong

- Hang Seng opens -0.6% at 24,223.

- China said to place six-month limit on its loosening of rare earth export licenses; Limit gives China govt leverage should negotiations sour in coming months.

- China equities' premium over Hong Kong peers drops to +27%, a five-year low - financial press.

- US White House Press Sec Leavitt: Trump is talking with trade team about the deal with China; Trump spoke with trade team and liked what he heard [overnight update].

- China releases statement after talks with US; "Not afraid to fight trade war but does Not want to fight"; Notes no winners in trade war and urges US to resolve issues via dialog; Vows to enhance cooperation with the US and reduce misunderstandings [overnight update].

- USTR Greer: Up to Pres Trump whether deadline gets extended; Do not have another meeting scheduled (with China) [overnight update].

- CAAM [auto association]: China May Vehicle Sales Y/Y: +11.2% v +9.8% prior; NEV wholesales Y/Y: +36.9% [overnight update].

- (HK) Reportedly Hong Kong’s pension fund managers have earlier formed a preliminary plan to sell down their US Treasury holdings within as soon as three months if the US loses its last recognized AAA credit rating - press [**Reminder: Moody's joined S&P and Fitch at cutting US rating from 'AAA' to 'AA+' on May 16th] [overnight update].

- China PBOC sets Yuan reference rate: 7.1803 v 7.1815 prior (strongest since Apr 2nd).

- China PBOC Open Market Operation (OMO): Injects CNY119B in 7-day reverse repos; Net drains CNY7B v drains CNY51B prior.

Japan

- Nikkei 225 opens -0.3% at 38,301.

- Japan Q2 BSI large all industry Q/Q: -1.9 V 2.0 PRIOR; Large Manufacturing Q/Q: -4.8v -2.4 prior (worst since Q1 2024).

- Japan May Tokyo Avg Office Vacancies: 3.6% v 3.7% prior [multi-year low].

- Japan releases weekly flows data [period ended Jun 6th]: Foreign buying of Japan equities: ¥180.2B v ¥336.1B prior; Japan buying of foreign bonds: -458.6B¥ v -¥118.0B prior.

- Japan MOF sells ¥450B v ¥450B indicated of JGBs in liquidity enhancement auction; bid-to-cover: 2.00x v 2.37x prior.

- Japan's largest energy generator JERA plans to triple LNG imports from the US - Nikkei.

- Japan Innovation Party's Maehara: PM Ishiba said "major gap" in stance between US, Japan in trade talks - financial press.

- Japan PM Ishiba: Cross-party response is needed for US tariffs - financial press.

- Japan PM Ishiba: Govt takes issues of rising prices seriously; Cannot agree on call to reduce consumption tax rate; Issuing more deficit-financing bonds is not an option to fix finances [overnight update].

- Japan Trade Negotiator Akazawa: Seeking review of US tariff measures; Still arranging next US visit; Higher risk of economic downturn due to US policies - comments from Tokyo [overnight update].

Korea

- Kospi opens +0.1% at 2,909.

- South Korea President Lee plans to visit the heads of the 5 Chaebol groups on Jun 13th [Fri] - Press.

Other Asia

- Indonesia May Consumer Confidence: 117.5 v 121.7 prior.

- Thailand May Consumer Confidence: 54.2 v 55.4 prior.

North America

- (US) Follow up: Pres Trump confirms (re Iran) US personnel being moved out of parts of the Mid-East; Imposes up to 2-week deadline for unilateral tariff rates, "Take it or leave it" - financial press.

- (US) G-7 said to try and "avoid conflict" with US Pres Trump by Not producing Joint Communique (Summit Jun 15-17 in Alberta, Canada).

- (US) Senate Majority Leader Thune (R-SD): Looking for ways to dial back the SALT provisions, but keep the House votes needed to pass the bill.

- (US) Pres Trump: I think I could forgive Elon Musk and reconcile with him; I think he feels really bad that he said what he said; I was disappointed in him, but I do not blame him for anything - podcast interview with NYP.

- (US) Pres. Trump: A Federal Appeals Court has just ruled that the United States can use TARIFFS to protect itself against other countries. A great and important win for the U.S.

- (US) MBA Mortgage Applications w/e June 6th: +12.5% v -3.9% prior (1st rise in 4 weeks).

- (US) Pres Trump: Deal with China done, subject to final approval with President XI and ME; We are getting a total of 55% tariffs, China is getting 10%. relationship is excellent.

- (US) MAY CPI M/M: 0.1% V 0.2%E; Y/Y: 2.4% V 2.4%E (1st reacceleration since Jan); (ex-food/energy) M/M: 0.1% v 0.3%e; Y/Y: 2.8% v 2.9%e.

- (US) May Real Avg Hourly Earning Y/Y: 1.4% v 1.5% prior; Avg Weekly Earnings Y/Y: 1.5% v 1.8% prior.

- US May CPI Supercore (M/M): +0.060% v +0.209% prior; CPI Supercore Y/Y (Core Services less Shelter).

- (US) US Pres Trump: Reiterates call to cut rates, references CPI as a motivator - Truth Social.

- (CN) Treasury Sec Bessent: If China upholds its end of Geneva agreements, 'big, beautiful' balancing of US and China economizes is possible; US May budget receipts +14.7% y/y following 9.5% increase in April; Sees FY25 budget gap at 6.5-6.7% of GDP - testimony to House Ways & Means Committee.

- US Treasury Sec Bessent: Trump Admin remains committed to maintaining the Dollar's reserve currency status; Stablecoin legislation backed by US Treasuries will expand usage of the US dollar - Senate testimony.

- (US) DOE CRUDE: -3.6M V -1.5ME; GASOLINE: +1.5M V +1ME; DISTILLATE: +1.2M V +1ME.

- (US) Treasury Sec Bessent (regarding speculation on becoming Fed Chair): 'Would like to stay in my seat' as Treasury Sec until Jan 2029.

- (US) Treasury's $39B 10-year note reopening draws 4.421% V 4.435% prior; bid-to-cover ratio: 2.52 V 2.67 prior and 2.61 over last 8 reopenings.

- (US) May Federal budget balance: -$316.0B V -$314.0BE.

- (IQ) US Embassy in Iraq preparing for evacuation due to heightened security risks - press cites Iraqi official.

Europe

- (IR) Israel said to be 'fully ready' to launch operation in Iran - financial press, citing sources.

- (IR) US envoy Witkoff to meet Iranian Foreign Min Muscat on Sunday to discuss Iranian response to recent US proposal - Axios via X.

- (US) Commerce Sec Lutnick: Met with UK PM Starmer yesterday, agrees to implement UK trade deal 'ASAP - financial press.

- UK) May RICS House Price Balance: -8% v -3%e (weakest since July 2024).

- (IT) Italy Econ Min Giorgetti: 2025 GDP goal is achievable and hopefully surpassable.

- (EU) ECB's Makhlouf (Ireland): We’re now in interest rate territory where we’re likely to remain for foreseeable future.

- (UK) Chancellor of the Exchequer (Fin Min) Reeves delivers Spending Review for 2026-29; to spend 2.6% of GDP on defense by 2027 (previously announced target at 2.5%); Defense spending to get £11.0B increase; Will make £30B commitment to nuclear power.

- (RU) Russia May CPI M/M: 0.43% v 0.4%e; Y/Y: 9.88% v 9.8%e.

- (EU) ECB's Villeroy (France): ECB situation is favorable, but does not mean that the situation is static; Don't see deflation, but ECB has tools to act - press interview.

- (EU) ECB Chief Lagarde: Further shifts may be underway in global currencies; Dollar loses ground, but euro gains limited - Role of the Euro Report.

Levels as of 01:20 ET

- Nikkei 225 -0.6%, ASX 200 -0.1%, Hang Seng -0.7%; Shanghai Composite +0.1%; Kospi +0.3%.

- Equity S&P500 Futures -0.3%; Nasdaq100 -0.3%; DAX -0.8%; FTSE100 -0.2%.

- EUR 1.1485-1.1529; JPY 143.73-144.57; AUD 0.6485-0.6512; NZD 0.6016-6042.

- Gold +1.5% at $3,394/oz; Crude Oil -0.3% at $67.93/bbl; Copper +0.5% at $4.8290/lb.