Last week’s volatility stays in rear-vision mirror amid JP holiday

Asia market update: Last week’s volatility stays in rear-vision mirror amid JP holiday; JPY carry trade unwind; PBOC fights CN bond bulls.

General trend

- The first day of the new trading week saw last week’s volatility remain in the rear vision mirror. The Nikkei close two Friday’s ago of 35,947 (before last week’s Black Monday capitulation of ~15%) was nearly re-attained in futures trading with Nikkei FUTs +2% at 35,450 (Japan cash equity markets closed due to a holiday). Kospi up over 1%, with other markets flat to higher.

- Currencies were lightly traded in relatively tight ranges, being flat to positive against USD, with the exception of JPY which edged lower from the open to again pierce 147. Bitcoin continued to fall over the weekend after recovering to over 62K late last week, down to 58K today.

- Of note to the JPY carry trade unwind; last week’s CFTC Yen Net short positions plummeted back down to a nearly neutral -11K contracts, compared to -73K a week earlier and the nose-bleed short levels of -182K to -184K for the weeks ended July 2nd and July 9th (marking the low point of the JPY currency in 38 years at ~162). Further, leveraged funds' positioning of -24K contracts on the Yen shrank to the smallest net short stance since Feb 2023.

- Over the weekend, former BOJ board member Sakurai said the BOJ will not be able to raise rates again in 2024, likely not to raise again until Mar 2025.

- RBNZ shadow board (NZIER): Is divided over whether New Zealand RBNZ should ease OCR from current 5.50% in August but there was overwhelming consensus that an easing cycle in the OCR should commence soon.

- Meanwhile Australia RBA Dep Gov Hauser kept up the hawkish tone of Gov Bullok last week, by saying that we should assume inflation stickiness (due to weaker supply and labour market tightness).

- A battle is taking shape between investors, who want to keep bidding Chinese bonds up due to continued deflationary forces and the PBOC, which is actively intervening via state-owned banks in the market to stop the decline in yields in an attempt to stimulate demand and also protect the Yuan. CN 10-yrs +6bps to 2.25% as the local press warned of a bond correction.

- South Korea exports in the first 10 days of August showed continued strong growth, with chip exports, +42% y/y.

- US equity FUTs were +0.1% to +0.2% during Asian trading

Looking ahead (Asian time zone)

- Tue Aug 13th AU Aug Consumer + July Biz Confidence (Tue eve DE ZEW Aug Econ Sentiment, Wed night US July PPI).

- Wed Aug 14th RBNZ rate decision, Thai Court to rule on PM Srettha dismissal / ethics case, 3pm local time (Wed eve EU Q2 prelim GDP + Ind Production + Employment; UK July CPI; Wed night US July CPI).

- Thu Aug 15th JP Q2 prelim GDP, CN July ‘data dump’, AU July employment, (Thu eve UK Q2 prelim GDP, Thu night US July Retail Sales).

- Fri Aug 16th (Fri night US Michigan Aug Consumer Sentiment).

Holidays in Asia this week

- Mon Aug 12th Japan, Thailand.

- Thu Aug 15th India, South Korea.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens +0.1% at 7,782.

- Reserve Bank of Australia's (RBA) Dep Gov Hauser: Assume inflation stickiness due to weaker supply, labour market tightness - Speech "Beware False Prophets".

- RBNZ shadow board (NZIER): Divided over whether New Zealand RBNZ should ease OCR from current 5.50% in August.

- New Zealand PM Luxon to visit Australia on Aug 15-16th - NZ press.

China/Hong Kong

- Hang Seng opens +0.1% at 17,102; Shanghai Composite opens -0.1% at 2,858.

- China 30-year government Bond FUTs -0.5%, 10-year China gov't bond FUTs -0.4%; China analysts ‘warn’ of bond correction – China Securities Journal.

- Goldman Chief China Economist Hui Shan: US Fed cut will 'open door' for China Policy Rate cut in Q4 - financial press.

- Saudi Arabia Sept Crude Oil supply to China expected to decline to ~43M barrels – financial press.

- Follow up: China sees acceleration of REIT offerings, regulator approved 2 more products since the start of Aug – China Securities Journal.

- (HK) Macau decides to criminalize illegal money-exchange activities – update.

- China State Council: PBOC to extend program providing low-cost loans for financial institutions targeting carbon emission cuts until end-2027.

- Italian Govt said to make cybersecurity demands in Chinese auto-plant talks; Asks Dongfeng to source parts [weekend update].

- China Evergrande (3333.HK) Liquidators don't see a path to restructuring; Welcome potential investors interested in pursuing restructuring, or any of company's constituent parts [weekend update].

- China PBOC Q2 Monetary Policy Implementation Report: Reiterates overall message with slight change of phrasing; Considers narrowing interest rate bands; To give market clear signal on interest rate target [weekend update].

- China Q2 preliminary current account: $54.9B V $39.2B prior [weekend update].

- EU Commission confident of WTO-compatibility of its investigation of Chinese EVs and EU provisional measures [weekend update].

- China Commerce Ministry (MOFCOM): EU decision on NEV tariffs violates WTO rules; Taking case to WTO; Urge EU to 'correct mistakes' [weekend update].

- Reportedly container blast seen at Zhoushan Port, China – press [weekend update].

- China PBOC sets Yuan reference rate: 7.1458 v 7.1449 prior.

- China PBOC Open Market Operation (OMO): Sells CNY75B in 7-day reverse repos; Net injects CNY74B v net injects CNY12B prior.

Japan

- Nikkei 225 closed for Japan holiday.

- Goldman Sachs: Hedge Funds between Aug 2-8 sold Japanese equities at the fastest pace in over five years - financial press (update).

- Former BOJ board member Sakurai said BOJ will not be able to raise rates again in 2024, BOJ may raise rates by Mar 2025 – US financial press.

South Korea

- Kospi opens +0.5% at 2,602.

- South Korea July Bank Lending To Households Total (KRW): 1,120.8T v 1,115.5T prior.

- South Korea Aug 1-10 Exports Y/Y: +16.7%; Imports: +13.4%.

North America

- (US) Fed’s Bowman (voter, hawk): Not confident that inflation will decline as it did in H2 2023; Need to be patient as there is still some upside risk to inflation.

- Cleveland Fed’s Inflation Nowcast forecasting July US CPI Y/Y (out on Wed, Aug 14th) at 3.0% v 3.0% in June; Sees Aug US CPI Y/Y at 2.7% v 3.0% forecasted for July.

Europe

- (UK) Bank of England's (BOE) Mann: UK wage growth still a concern for inflation - FT.

- (CH) Swiss National Bank (SNB): Central bank will struggle to break its interventionist habit - FT opinion piece.

- (SE) Sweden Aug SEB Swedish Housing-Price Indicator: 43 v 51 prior.

- (IL) US Defense Sec Austin: Confirms to have ordered USS Abraham Lincoln carrier strike group to accelerate transit to Middle East – Pentagon.

- (RU) Russia evacuating parts of Belgorad due to 'activity' of Ukranian forces - press, citing regional Governor.

- (UR) Zaporizhzhia nuclear power plant said to sustain damage after Ukraine strike; Russia and Ukraine said to be trading blame; no impact seen on nuclear safety – Press [update].

- (IE) Ireland July Construction PMI: 49.9 v 47.5 prior (Third month of contraction).

- (IR) Reportedly Iran is better positioned to launch nuclear weapons program - WSJ citing new US Intelligence assessment.

Levels as of 01:20 ET

- Nikkei 225 closed; ASX 200 +0.4%; Hang Seng +0.2%; Shanghai Composite +0.1%; Kospi +1.0%.

- Equity S&P500 FUTs +0.1%; Nasdaq100 FUTs +0.2%, Dax +0.5%; FTSE100 +0.2%.

- EUR 1.0911-1.0924: JPY 146.60-147.25; AUD 0.6565-0.6588; NZD 0.5989-0.6017.

- Gold -0.1% at $2,472/oz; Crude Oil +0.5% at $77.22/brl; Copper +0.2% at $3.9915/lb.