Markets more settled [ex-KR] but remain nervous after recent VOL and macro uncertainty

General trend and developments

-Japanese JGB volatility took a breather [although late in session rose another 5-6bps at long-end] ahead of tomorrow’s 20-year supply and Thursday’s BOJ outright operations. BOJ also due to meet with JGB market participants [May 21-22nd]. Watch for any updates about the current BOJ tapering plans in view of the extra budget speculation confirmed to be on the cards by PM Takaichi yesterday. Press reports today that JP govt also stepping up efforts to diversity JGB buyers. [Recall yesterday a Takaichi advisor also specifically saying may examine the current BOJ bond tapering plan].

-Kospi underperformed losing >4% as Samsung strike concerns drive a “sell Korea” theme, similar to what has been recently seen with JP and IDR assets. Shareholders remain unnerved by labor uncertainty at Samsung, and the Bank of Korea (BOK) has become the latest to warn about the possible growth impact of a general strike (up to a -0.5% hit to GDP).

-Nervousness has extended to Nasdaq FUTs, down in Asia for three straight days, with moves >0.5% on each day.

-Bond yields in Australia and New Zealand also down -6 to -8bps, following global softness in yields overnight.

-Oil price pressure was reduced somewhat by overnight comments from Pres Trump about “Will hold off on our planned Military attack of the Islamic Republic of Iran, which was scheduled for tomorrow, in that serious negotiations are now taking place”, but the situation still highly uncertain ahead of meeting with his National Security team later today (Tues) to discuss military options.

-Japan Q1 GDP again showed the impact of inflation, with higher nominal GDP vs. real GDP. The data leaves the BOJ on track to hike rates in the near-term, possibly in June or July. [For Japan, we also ponder if the better consumption component was also due to higher inflation].

-Japan Fin Min Katayama commented after the G7 Finance Ministers’ meeting in France that G7 is not considering coordinated action on bond selloffs. Rather, “Every country is responsible for its own market situation”.

-RBA’s Chief Economist Sarah Hunter in a speech warned that inflation risks are drifting higher, particularly concerned about the impact of the Middle East conflict. Came ahead of the RBA Minutes, where it still remains unclear if the RBA will pause rate hikes in June. The May Minutes provided few additional details on this topic. Interesting comments included the board agreeing that any assessment of how the incoming data could change the outlook should acknowledge that monetary policy could not alter the near-term trajectory of inflation and, additionally, that output growth would likely be lower than potential growth for some time. The focus now shifts to Australia’s Apr jobs figures [May 21st].

-New Zealand economy continues to struggle with card spending for April contracting while Q1 PPI input and output costs much higher than prior (unsurprisingly, given the Middle East supply shock).

-China PBOC continued to set three-year strong fixes for the Yuan.

-Interesting AI news regarding Tokyo Steel (5423.JP), where activist Investor Oasis calling on the company to use underutilized steel plants as data centers to spur growth. [Recall also back in Feb Toto (5332.JP) saw activist holder Palliser take a stake as an “AI play" due to its advanced ceramic components being critical for AI chip manufacturing].

-Standard Chartered planing a 15% cut in corporate roles by 2030.

- US equity FUTs -0.5% to -0.3% during Asia trading.

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

-Tue May 19th: (Tue night, US Apr Pending Home Sales).

-Wed May 20th: CN PBoC Loan Prime Rate, ID Rate Decision, (Wed night, UK Apr CPI, US FOMC Meeting Minutes).

-Thu May 21st: KR Apr PPI, NZ Apr Trade Balance, AU May Prelim PMIs, JP Apr Trade Balance & May PMIs, AU Apr Employment, IN May PMIs, (Thu night, US Apr Building Permits, US May PMIs).

-Fri May 22nd: KR May Consumer Confidence, NZ Q1 Retail Sales, JP Apr CPI, (Fri night, US Final May Michigan Consumer Sentiment).

Holidays in Asia this week

-No holidays in Asia this week.

Headlines/economic data

Australia/New Zealand

-(AU) ASX 200 opens +0.9% at 8,570.

-(AU) Reserve Bank of Australia (RBA) May Minutes: Financial conditions likely somewhat restrictive after recent rate hikes.

-(AU) Australia PM Albanese: Australia has secured >600K barrels of jet fuel; Three cargoes of jet fuel from China expected to arrive from early June.

-(AU) Australia Resources Assistant Minister: Australian gas market review will see more industry consultation and industry round tables in coming days.

-(AU) Australia May Westpac Consumer Confidence: 83.0 v 80.1 prior.

-(AU) Fitch Ratings: Australia budget holds fiscal line through oil volatility.

-(AU) Australia Treasurer Chalmers: Budget aims to be helpful, not harmful on inflation.

-(AU) Reserve Bank of Australia (RBA) Sarah Hunter (Chief Economist): Risk of inflation drifting higher is increasing - speech: Inflation and the Impact of the Middle East Conflict.

-(AU) USGS: Mag 5.8 earthquake strikes 49km SSW of Port-Villa Vanuatu.

-(AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 66.4 v 64.1 prior.

-(NZ) New Zealand Fin Willis: Sees NZ$2.4B in savings from overhaul of public sector over next 4 years [budget is due on May 28th].

-(NZ) New Zealand Q1 PPI Output Q/Q: 0.8% v 0.1% prior; PPI Input Q/Q: 1.4% v -0.5% prior.

-(NZ) New Zealand Apr Total Card Spending M/M: -1.6% v 1.0% prior.

China/Hong Kong

-(CN) Shanghai Composite opens -0.2% at 4,122; (HK) Hang Seng opens +0.1% at 25,693.

-(CN) China Pres Xi reportedly told Pres Trump [at last week's Summit] that Russian Pres Putin may 'regret' invasion of Ukraine - FT.

-(CN) Former-PBOC Official Zhu Min: [Comments on FX swaps] China can be a global lender of last resort.

-(CN) Ten more China firms have been warned of delisting, cites ‘false’ accounting – Shanghai Securities News.

-(CN) China Apr industrial robot production volume: 93K units, +15% y/y v +24% prior; cites broker note.

-(CN) According to Goldman Sachs, US AI-investment to ‘deliver returns’ despite open-source rivals in China – SCMP.

-(CN) China banks wealth units have reduced fees to as much as ‘zero’ – Chinese press.

-(CN) China to conduct live-fire drills in Western Pacific [exact location and times are unspecified].

-(HK) Hong Kong Leader Lee to visit Kazakhstan, Uzbekistan in early June, 2026 - financial press.

-(CN) China PBOC sets the yuan mid-point at 6.8375 v 6.8435 prior (strongest level since March 24th, 2023).

-(CN) China PBOC Open Market Operation (OMO): Sells CNY500M in 7-day Reverse Repos; Net CNY0B v CNY0B prior.

Japan

-(JP) Nikkei 225 opens +0.6% at 61,203.

-(JP) Japan Q1 Preliminary GDP Q/Q: 0.5% v 0.4%e; GDP Annualized Q/Q: 2.1% v 1.7%e.

-(JP) Japan and South Korea agree joint oil framework at Summit - Nikkei.

-(JP) Follow up: Japan PM Takaichi: Confirms both sides to discuss concrete energy cooperation measures [with South Korea] - financial press.

-(JP) Japanese Official: Mindful of Yen risk from any US treasury sales.

-(JP) Japanese Government "stepping" up efforts to diversify JGB buyers - Yomiuri.

-(JP) Japan Econ Min Kiuchi: Won't rule out extra budget to fund emergency, necessary measures.

-(JP) Japan Mar Final Industrial Production M/M: -0.4% v -0.5% prelim; Y/Y: 2.4% v 2.3% prelim.

-(JP) Japan Mar Tertiary Industry Index M/M: -0.2% v -0.5%e.

-(JP) TTN Reminder/Flashback from Dec 20th 2019: Japan said to ease part of export controls with South Korea – financial press.

-(JP) Japan Chief Cab Sec Kihara: Reiterates closely monitoring price trends amid Middle East issue.

-(JP) According to a French broker, there is ‘no room’ for a disconnect between the BOJ and Japan government [amid bond yield volatility] – US financial press.

Korea

-(KR) Kospi opens -1.2% at 7,426.

-(KR) BOK forecasts Samsung strike to cut GDP growth by -0.5ppt - Maeil.

-(KR) South Korea Q1 Household Credit (KRW): 1,993.1T v 1,978.8T prior.

Other Asia

-(ID) Indonesian Rupiah falls further to record low of IDR17,700/USD in early trade.

-(ID) Indonesia launches USD-denominated debt sale as pressure builds [IDR trades at record low vs the USD, domestic equities -1%] – US financial press.

-(ID) Indonesia Defense Minister: Indonesia, US signs letter of intent on airspace use, however, Jakarta gave no commitment.

-(TW) Taiwan Premier: Hope for peaceful exchanges with China - financial press.

-(TW) Presidential Office: Taiwan Pres Lai to hold news conference on Wed (May 20th, 2026) to mark his second year in office.

-(IN) Indian Rupee falls to a new record low against the USD.

-(IN) India hikes petrol and diesel prices by a further INR 0.9/litre - local media.

-(MY) Malaysia Apr CPI Y/Y: 1.9% v 1.9%e.

-(HK) Hong Kong Leader Lee to visit Kazakhstan, Uzbekistan in early June, 2026 - financial press.

North America

-(US) President Trump to host swearing-in ceremony for new Fed Chair Warsh on Friday, May 22nd - WSJ X post [Weekend Update].

-(US) Fed's Goolsbee (non-voter): Excited to see Warsh as the Fed's Chair; Inflation must be at the top of his mind once he starts; Inflation is too high and the job market is stable; If rates are cut too much you'll ignite inflation even more [Weekend Update].

-(US) May New York Fed Services Business Activity: -5.8 v -14.0 prior [Weekend Update].

-(US) May NAHB Housing Market Index: 37 v 34e [Weekend Update].

-(US) US to screen for Ebola at airports, notes one American in DR Congo has been infected - SCMP.

-(US) Pres. Trump to sign executive orders at 4:30pm ET on Tuesday 19th May, 2026 - US financial press.

-(US) Follow up: Treasury General Counsel Brian Morrissey resigned on Mon after the government settled the previously reported Trump IRS lawsuit - WSJ.

-(US) Defense watchdog to probe US attacks on boats in Caribbean - US financial press.

-(US) Trump Admin preparing to announce plan for trading 'tokenized' digital versions of securities - press (update).

-(US) PJM: DOE has authorized data center backup generation resources, relates to the authorization of backup resources for the Mid-Atlantic.

-(US) US Coast Guard: Coast Guard, partners respond to oil spill at Ala Wai Harbor in Honolulu, Hawaii.

-(BR) Brazil May FGV Inflation IGP-10 M/M: 0.9% v 1.1%e; Y/Y: 1.5% v 1.7%e [Weekend Update].

-(AR) Argentina Mar Wages M/M: 3.4% v 2.4% prior.

-(AR) Argentina Apr Budget Balance (ARS): 632.8T v 930.3T prior.

-(CL) Chile Central Bank raises capital requirements for risk assets to 1.0%; raises the countercyclical capital requirement from 0.5% to 1.00%.

-(CL) Chile Q1 Current Account Balance: $1.9B v $1.4Be.

Europe

-(UK) PM Starmer: Denies report that he is considering an exit timetable to leave PM post; I am not going to walk away, we need to show we can turn thing around [Weekend Update].

-(UK) Govt spokesperson Wells: PM is not setting out a timetable for his departure [Weekend Update].

-(UK) Former MP Andy Burnham: promises action on rent, bills and travel fares to make like cheaper for constituents; A vote for me is a vote to change Labour party [Weekend Update].

-(PL) Poland Apr CPI Core M/M: 0.9% v 0.8%e; Y/Y: 3.0% v 2.9%e [Weekend Update].

-(RU) US Treasury will extend the lapsed sanctions waiver on Russian seabourne oil for another 30 days - press [Weekend Update].

-(RU) Russia Pres Putin: Russia-China relations are at 'unprecedented' level - comments ahead of May 19-20th trip to Beijing starting today.

-(RU) Russia Q1 Preliminary Current Account Balance: $12.2B v $9.4B prior.

-(RU) Local Governor: Russia's Yaroslavl region is under drone attack.

Middle East

-(IR) US said to have proposed temporary waiver on Iran oil sanctions; US reportedly, unlike in prior peace offers, has agreed to temporary cancellation of sanctions against Iranian oil during period of negotiations - Iranian press [Weekend Update].

-(IR) White House rejects latest update to Iran peace proposal, says its "not meaningful" - Axios citing US official [Weekend Update].

-(IR) US official says Iranian state media report that the U.S. has agreed to lift oil sanctions while talks are ongoing is false - CNBC's Cassella [Weekend Update].

-(IR) US Pres Trump: Will hold off on our planned Military attack of the Islamic Republic of Iran, which was scheduled for tomorrow, in that serious negotiations are now taking place [Weekend Update].

-(IR) Iran senior source: So far US has only agreed to unfreeze 25% of seized funds (Iran demands release of all seized funds) [Weekend Update].

-(IR) Iran says US demands are still excessive despite recent draft document changes - Iranian press (Tasnim) [Weekend Update].

-(IR) Air defense system said to be activated on Qeshm Island due to "micro drones" - Iran press [Weekend Update].

-(IR) US Pres Trump: Countries requested that we put off the attack on Iran 'briefly'; We'll probably be satisfied with a deal in which Iran doesn't get a nuclear weapon; Countries also believe that a deal is close between the US and Iran; Believes he's made a lot progress.

Levels as of 01:20 ET

Nikkei 225 -0.4%; ASX 200 +0.9%; Hang Seng +0.2%; Shanghai Composite +0.1%; Kospi -2.8%.

Equity S&P500 Futures -0.3%; Nasdaq100 -0.5%; DAX flat; FTSE100 +0.1%.

EUR 1.1663-1.1633; JPY 159.03-158.74; AUD 0.7177-0.7126; NZD 0.5880-0.5850.

Gold -0.7% at $4,535/oz; BTC -0.1% at $76,731, Crude Oil -1.1% at $103.23/bbl; Copper -1.3% at $6.2513/lbs.