Mid-East tensions tightrope, with markets on wait-and-see mode ahead of US NFP jobs

Asia Market Update: Mid-East tensions tightrope, with markets on wait-and-see mode ahead of US NFP jobs; Fed’s Jackson Hole late-Aug and FOMC in Sept likely to grow in focus;

General trend and developments

-With Middle East developments in a delicate balance, little volatility in soft Asian equities amid general risk-off ahead of US July Nonfarm Payrolls tonight, widely expected to be a modestly healthy number. Any blow-out to the upside would place more pressure on rates and the US Fed, with a hike mostly priced in and prior to that Jackson Hole annual symposium set for end-August - Warsh’s first as Chair. It could be a volatile period the next several weeks as more Fed members turn more hawkish.

- Overnight Fed’s Musalem (non-voter) said it was “crucial to put meaningful restraint on underlying inflation”. Inflation is too high in his view and at the recent FOMC meeting he actually favored raising rates.

-Iran and Oman reportedly in the final stages of a joint management agreement for the Strait of Hormuz that would levy a 5% to 7% cargo value transit fee (but exempting Chinese vessels). Tehran has told regional neighbors to pressure the US to “desist from hostile actions”, while threatening its own attacks on regional infrastructure. WTI crude spiked higher +4% in the overnight session. Developments have contributed to an 8% cancellation rate on major East-West shipping routes, on Flexport Global data.

-In China trade and tariff developments the White House confirmed a 15% tariff on polysilicon effective Dec, 2026, alongside new minimum import pricing for solar components and wafers. In response, Chinese polysilicon firms have pledged to halt below-cost sales to combat chronic market overcapacity and stabilize pricing - although unclear if the pledge is only for domestic “involution” purposes or will equally be applied to exports.

-China’s July trade surplus was ~10% lower than the prior month’s record high of $125B, with lower exports and imports than the prior month. CN rare earth exports fell further to just 4.22Kt.

-More liquidity soaked out of the US equity markets with another $25B raised by Google. The $100B in bids for the offer may be good for the hyperscaler but a further $25B of investor funds now not available for the rest of the circular-looped AI supply chain.

-SpaceX +6% on the day its initial lockup expiry started to free up 911.5M shares, expanding the float from 4.9% to 11.8% with a staggered release calendar through to 2027. Perhaps a floor forming in the battered stock, -20% from its pre-IPO price of $135/shr. Nevertheless, the supply overhang worth monitoring given the stock's post-earnings volatility.

-Japan MOF data confirmed Japan to have intervened in FX market back in Spring (late Apr, early May) for a total of three days. As for last week’s bout of intervention, the Yen has now given up about half of its 9 Big Figure gains that started a week ago. Meanwhile, the ECB said to only be aware of the US selling Euros to buy Yen AFTER the trade was made, late last week.

-Further effective price increases for AI tokens from Chinese model makers, with both Alibaba and Moonshot to request revenue-sharing for its next version of their Qwen AI and Kimi K3 models respectively. ByteDance founder forbade its AI researchers from distilling rival models adding to the US-China tensions whilst also adding that it is targeting a 10T parameter AI model.

-Anthropic announcing improvements of its biology safeguards for its Fable 5 model, whilst it is not to be used for professional drug development.

-Additionally, model safety concerns spread to China, with Moonshot’s Kimi K3 having broken out of containment, amid Meta and OpenAI containment issues.

-Finally, OpenAI said to be “imminently” preparing to launch its new model for solving math and theoretical computer science problems, to be named “Astra“.

-Robot-maker Unitree priced its Shanghai IPO, raising CNY6.1B, significantly more than the CNY4.2B originally sought.

-US equity FUTs flat to +0.2% during Asia trading.

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

-Fri Aug 7th: (Fri night, US July Nonfarm Payrolls & Unemployment Rate).

Holidays in Asia this week

-No holidays in Asia this week.

Headlines/economic data

Australia/New Zealand

-(AU) ASX 200 opens -0.5% at 9,229.

-(AU) Australia sells A$1.0B v A$1.0B indicated in 1.50% Jun 2031 Bonds: Avg Yield: 4.5878% v 4.4429% prior ; bid-to-cover: 4.07x v 5.03x prior.

China/Hong Kong

-(CN) Shanghai Composite opens -0.1% at 8,896; (HK) Hang Seng opens flat at 25,527.

-(CN) CHINA JULY TRADE BALANCE: $112.5B V $107.0BE.

-(CN) CHINA JULY TRADE BALANCE (CNY): 767.1B V 859.1B PRIOR.

-(CN) China polysilicon firms pledge no below-cost sales - US financial press [Report].

-(CN) China PBOC adds gold in Hong Kong to support trading hub – US financial press.

-(CN) China confirms first deaths in South China Sea; Appears to relate to Aug 11th 2025 collision between two Chinese vessels in South China Sea - US financial press.

-(CN) MOONSHOT.IPO Kimi K3 has also broken out of containment [amid Meta and OpenAI containment issues] - Wired.

-(CN) MOONSHOT.IPO Said to be asking partners for revenue share of up to 30% for Kimi K3 Model - financial press, citing sources.

-(CN) 9988.HK Plans to ask for revenue sharing for next version of open-source Qwen AI model - financial press, citing sources.

-(CN) BYTEDANCE.CN Targets 10T parameter AI model nearing Anthropic's Mythos performance benchmark - FT [citing three people familiar with the matter].

-(CN) BYTEDANCE.CN Founder reportedly forbade AI researchers from distilling rival models - Semafor (update).

-(CN) UNITREE.IPO Prices Shanghai IPO at CNY150.80/share (~$22.34/share) to raise CNY6.1B - [update].

-(CN) China PBOC sets the yuan mid-point at 6.7904 v 6.7895 prior.

-(CN) China PBOC Open Market Operation (OMO): Sells CNY1B in 7-day Reverse Repos; Net drains CNY133B v drains CNY270B prior.

Japan

-(JP) Nikkei 225 opens +0.1% at 65,801.

-(JP) Japan Jun Household Spending Y/Y: -3.3% v +0.9%e.

-(JP) Japan end-July Foreign Reserves: $1.29T v $1.29T prior.

-(JP) Japan Jul 1-20th: Exports Y/Y: +20.4%; Imports Y/Y: +22.5%.

Korea

-(KR) Kospi opens +1.1% at 6,365.

-(KR) 035420.KR Reports Q2 (KRW) Net 698.6B v 480.9Be, Op 520.3B v 561.8Be, Rev 3.39T v 3.37Te.

Other Asia

-(TW) Taiwan July CPI Y/Y: 2.5% v 2.5%e; CPI Core Y/Y: 2.4% v 2.3%e; PPI Y/Y: 16.9% v 15.5% prior [EU market close].

-(PH) Philippines Q2 GDP Q/Q: 0.6% v 0.7%e; Y/Y: 2.3% v 2.9%e.

-(ID) Indonesia July Foreign Reserves: $145.3B v $145.6B prior.

-(IN) USD/INR India Central Bank likely selling US dollars to limit Rupee's losses - Traders.

-(MY) MAHB.MY Malaysia Air starts mandatory drug testing for all pilots.

North America

-(US) Q2 PRELIMINARY NONFARM PRODUCTIVITY: 1.4% V 0.6%E; UNIT LABOR COSTS: 1.3% V 2.1%E [US market close].

-(US) INITIAL JOBLESS CLAIMS: 199K V 205KE; CONTINUING CLAIMS: 1.801M V 1.79ME [US market close].

-(MX) MEXICO CENTRAL BANK (BANXICO) LEAVES OVERNIGHT RATE UNCHANGED AT 6.50%; AS EXPECTED; UNANIMOUS DECISION [US market close].

-(US) Pres Trump said to have called Fed's Warsh 'repeatedly' since becoming Fed Chair [US market close].

-(US) Fed's Daly (non-voter): Fed should be prepared to act if inflation situation gets out of hand [US market close].

-(US) Fed's Cook: Prepared to raise rates if disinflation does not resume soon. do not have that luxury" of waiting in the current environment. [US market close].

-(US) Reports that US State Dept would close foreign consulates including Canada and Japan in a cost cutting review; critics argued this might weaken US influence in strategically important region and create an opportunity for China to expand their presence [US market close].

-(US) WEEKLY EIA NATURAL GAS INVENTORIES: +33 BCF VS. +30 BCF TO +32 BCF INDICATED RANGE [US market close].

-(US) Reportedly hackers recently targeted dozens of US financial institutions and companies, including Blackstone, Moody's, CME, among several others; Remains unclear if any of these cyberattacks were successful - press [US market close].

-(US) President Trump: [On Strait of Hormuz] Moving along good - Team USA Reception, Rose Garden [White House Press Pool].

-(US) White House confirms to impose 15% tariff on polysilicon, effective on Dec 4th, 2026.

-(US) Fed's Musalem (non-voter): Crucial to put meaningful restraint on underlying inflation; Inflation is too high and balance of risks is toward higher price pressures.

-(US) US Senate Maj Leader Thune: Clarity Act (Senate cryptocurrency bill) vote delayed to September.

-(US) Four US tech giants have now built up $1.46T in assets, now rival oiling majors in size Nikkei Asia.

-(US) Flexport Global Logistics Update: Blank sailing activity across major East-West trades is tracking at 58 cancelled sailings out of 723 planned from the week of August 3 through the week of August 31, a cancellation rate near 8%, largely due to Middle East conflict.

-(US) ANTHROPIC.IPO Anthropic PBC: Improving biology safeguards for Fable 5 by cutting biology fallbacks by about 85%; Fable 5 is not usable for professional drug development - Statement.

-(CA) Canada Intl Trade Min Leblanc: Canadian trade negotiation had constructive and detailed meeting with USTR Greer in Washington - post on X.

Europe

-(EU) ECB Economic Bulletin noted that inflation was still above target and energy risks remained. Recent information points to some improvement in economic activity in the second quarter of 2026, even though the conflict in the Middle East remained a headwind [EU market close].

-(EU) ECB said to only be aware of US selling Euros to buy Yen AFTER the trade - FT.

-(EU) Euro Zone Jun Retail Sales M/M: -0.3% v +0.1%e; Y/Y: 0.7% v 1.0%e [EU market close].

-(DE) Germany Jun Factory Orders M/M: 3.1% v 0.5%e; Y/Y: 6.5% v 5.9%e [EU market close].

-(DE) Germany July Construction PMI: 42.1 v 44.8 prior (7th month of contraction) [EU market close].

-(UK) July Construction PMI: 44.7 v 40.0e (19th month of contraction) [EU market close].

-(FR) France Q2 Preliminary Wages Q/Q:0.7 % v 0.7% prior [EU market close].

-(IT) Italy Jun Industrial Production M/M: -1.0% v +0.3%e; Y/Y: -0.6% v +1.1%e; Industrial Production NSA (unadj) Y/Y: +2.4% v -1.8% prior [EU market close].

-(ES) Spain Jun Industrial Production M/M: -0.7% v -0.5%e; Y/Y: 1.1% v 3.1% prior; Industrial Production (unadj) Y/Y: 3.8% v 0.5% prior [EU market close].

-(CZ) CZECH CENTRAL BANK (CNB) LEAVES 2-WEEK REPURCHASE RATE UNCHANGED AT 3.75%; AS EXPECTED [EU market close].

-(CZ) Czech Jun Trade Balance (CZK): 15.5B v 17.2Be [EU market close].

-(CZ) Czech Jun Industrial Output Y/Y: 7.2% v 2.6%e; Construction Output Y/Y: 2.0% v 4.4% prior [EU market close].

-(CH) Swiss July Unemployment Rate: 3.0% v 3.0%e; Unemployment Rate (seasonally adj): 3.1% v 3.1%e [EU market close].

-(NL) Netherlands Jun Consumer Spending Y/Y: 1.7% v 2.2% prior [EU market close].

-(SE) Sweden July Preliminary CPI M/M: -0.3% v -0.4%e; Y/Y: 0.2% v 0.1%e [EU market close].

-(SE) Sweden July Preliminary CPIF M/M: -0.3% v -0.4%e; Y/Y: 0.7% v 0.7%e [EU market close].

-(SE) Sweden July Preliminary CPIF (ex-energy) M/M: 0.4% v 0.1%e; Y/Y: 0.6% v 0.3%e [EU market close].

-(SE) Sweden July Maklarstatistik Housing Prices: 3.4% v 2.9% prior.

-(HU) Hungary Jun Industrial Production M/M: -1.4% v -0.9%e; Y/Y: 4.1% v 5.1%e [EU market close].

-(HU) Hungary Jun Retail Sales Y/Y: 3.0% v 5.1%e [EU market close].

-(AT) Austria July Wholesale Price Index M/M: +0.8% v -0.7% prior; Y/Y: 6.9% v 5.4% prior [EU market close].

Middle East

-(IR) US Official: Strait of Hormuz is an international waterway; Not one party controls the lanes or transiting through them; Temporary routes will be without impediment – press [US market close].

Levels as of 01:20 ET

Nikkei 225 flat; ASX 200 flat%; Hang Seng +0.1%; Shanghai Composite +0.7%; Kospi -0.5%.

Equity S&P500 Futures flat; Nasdaq100 +0.2%; DAX +0.1%; FTSE100 -0.2%.

EUR 1.1527-1.1518; JPY 158.57-158.22; AUD 0.7036-0.7023; NZD 0.5884-0.5862.

Gold +0.6% at $4,266/oz; BTC -1.1% at $64,207; WTI Crude Oil +1.4% at $78.33/bbl; Copper +0.4% at $6.7442/lbs.