Nikkei pre-election jitters, ASX outperforms on potential US tariff on CN battery material

Asia Market Update: Nikkei pre-election jitters; ASX outperforms on potential US tariff on CN battery material; Trump green-lights Epstein 'files'; Crypto outperforms.

General trend

- Nikkei 225 failed to follow US equities higher, which reached fresh all-time-highs during the NY session.

- Nikkei media chimed in today on the chance of Japanese stock ‘turbulence’ ahead of the July 20th (Sunday) Upper House elections, where the fiscally conservative LDP party may lose its majority and may have to form alliances with minor parties that want to cut Japan’s consumption tax. [Nikkei briefly touched 40K again at the open but proceeded to sink below the key mark].

- Japan 40-year JGB yield falls by 8bps to 3.295% ahead of the election, while Dec BoJ OIS chance of 25bp hike rose to 66.0%, vs 63.5% yesterday.

- Separately, Japan's inflation eased in June from a 29-month high.

- With the US Dept of Commerce planning to impose a 93.5% tariff on battery material from China, Korea’s Posco Future M +20%, Australia’s Syrah Resources and Renascor +17%, Talga +12%

- Australia's ASX outperforms +1.5% to fresh record highs, Resources +2%.

- Following yesterday’s hike in Australia’s unemployment rate the chances of a 50bps cut at the next RBA meeting rose from 48% to 52%. (Prior decision last week was an unexpected hold)

- US Fed’s Waller again called for a 25bps cut at the Fed’s July meeting.

- U.S. Treasury Secretary Scott Bessent will meet Japanese PM Ishiba in Tokyo today (Friday). Bessent is visiting Japan to attend the "national day" event of the United States at the ongoing World Exposition in the western city of Osaka on Saturday. Japan Trade Rep Akazawa will be in Osaka to receive the US delegation led by Bessent.

- US Pres threatens to sue the Wall St Journal, News Corp and Rupert Murdoch over supposed “bawdy” letters sent by Epstein’s ‘friends’, said to include Donald Trump, for a 50th birthday. Then, amid the Epstein disclosure controversy that the President has not been able to make go away [with severe rumblings of discontent from his core base], Trump instructed Attorney General Pam Bondi to produce all pertinent Grand Jury testimony, subject to court approval.

- In an interesting development after the close yesterday, the Hong Kong Monetary Authority (HKMA) said that it had ‘no intention’ of setting up a ‘bad bank’ to handle NPL (Non-Performing Loans) to absorb bad debt. [No indicative reports of whether such a bank would be for financial institutions or their lenders, such as real estate developers]. The HKMA denial stated said that “Hong Kong lenders’ credit risk is manageable, with sufficient provisions >140% and that banks in Hong Kong maintain healthy balance sheets”. Market rumors suggest that Hang Seng Bank and Bank of Communications have been discussing a "bad bank" to manage increasing non-performing loans (NPLs) through a special vehicle.

- Australia Debt Agency (AOFM) confirms a Syndicate to be priced next week for a new Oct 2036 Bond offering.

- The gloves came off between Brazil’s Pres Lula and Pres Trump, with Lula saying he would not take orders from “a gringo” and that Brazil is facing ‘unacceptable blackmail’. [Follows Trump’s threat of 50% tariffs and today confirming to have sent a supportive letter to Lula’s political rival, former Brazilian Pres Bolsonaro].

- With Bitcoin back up to around 120K again, Ethereum +6%, XRP, +8%, Stellar +7% and Solana +6% continue their tear higher this week, as the House passed the long-awaited crypto bills and also Trump said to be preparing an EO to allow 401(k) retirement plans to invest in alternative assets, including cryptocurrencies (as well as gold, private equity, and infrastructure funds).

- US equity FUTs +0.1% during Asian trading.

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

- Fri July 17th (Fri night US Jun Housing Starts, Michigan Consumer Sentiment).

Holidays in Asia this week

- N/A.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens +0.5% at 8,678.

- Australia Debt Agency (AOFM) appoints joint lead managers for Oct 2036 Bond; Confirms Syndicate to be priced next week.

- Australia sells A$1.1B v A$1.1B indicated in 1.00% Nov 2031 bonds; Avg Yield: 3.8598% v 3.8959% prior; bid-to-cover: 3.52x v 4.40x prior.

- New Zealand Trade Min McClay: Canada has committed to dairy quota changes under CPTPP.

- RBNZ: New Zealand Jun Credit Card Spending M/M: -1.1% v +0.7% m/m; Y/Y +0.9%.

China/Hong Kong

- Hang Seng opens +1.1% at 24,757; Shanghai Composite opens +0.1% at 3,519.

- China Commerce Min (MOFCOM) Wang: 'Hopeful' to see 2025 retail sales >CNY50.0T v CNY48.8T y/y ; Chinese retail sales on PPP basis 1.6x the US - comments on 5-year plan.

- Cyberspace Administration: China, EU agree to set up working team to cooperate on bilateral cross-border flows of auto data - financial press.

- China again encourages foreign-invested firms to reinvest in China - financial press.

- China Ministry of State Security: Affirms to curb 'illegal' rare earth exports.

- A US-based Wells Fargo banker has been prevented from leaving China after traveling there; WFC has suspended all travel to China – press.

- Hong Kong Monetary Authority (HKMA): No intention of setting up 'bad bank'; sector has healthy balance sheet.

- China reportedly adjusting consumption tax policy for luxurious and super luxurious cars - press.

- China threatens to block Panama ports deal unless its shipping giant is included - WSJ.

- US Dept of Commerce issues prelim ruling on China graphite dumping; Plans to impose 93.5% tariff on battery material from China.

- China PBOC sets Yuan reference rate: 7.1498 v 7.1461 prior.

- China PBOC Open Market Operation (OMO): Injects CNY188B in 7-day reverse repos; Net injects CNY103B v injects CNY361B prior.

Japan

- Nikkei 225 opens +0.4% at 40,068.

- JAPAN JUN NATIONAL CPI Y/Y: 3.3% V 3.3%E; CPI (EX-FRESH FOOD)/ Y/Y: 3.3% V 3.4%E; CPI (ex-fresh food/energy) Y/Y: 3.4% v 3.3% prior.

- Nikkei: Japan stocks 'risk turbulence' as election 'jitters' hit ruling LDP party.

- Japan Fin Min Kato: Tariffs are not appropriate measures to narrow trade imbalance; Open, free trade is important.

- Japan and EU said to plan '2+2' economic talks and will discuss joint rare earth procurement as part of those talks – Nikkei [overnight update].

Korea

- Kospi opens %+0.3 at 3,200.

Other Asia

- Thailand Finance Min Pichai: US-Thailand tariff negotiations not over yet; Continuing paperwork for tariff negotiations - financial press.

- Thailand Commerce Vice Min: To offer no duties on 90% of US goods; Improving offer to avoid 36% Trump tariff [overnight update].

North America

- Union Pacific size of potential deal with Norfolk Southern said to be $200B - FT.

- (BR) Brazil Pres Lula: Brazil is facing "unacceptable blackmail" instead of a US response on tariffs; Will not take orders from a gringo - financial press.

- (US) Fed’s Waller: Fed should cut interest rates by 25bps in July's meeting; An interest rate cut in July gives the Fed space to hold rates for a few meetings.

- US SEC Chair Atkins: Asked staff to develop clear rules ahead on crypto; Weighs innovations exemption for digital asset firms.

- (US) Fed's Waller: Lots of uncertainty around long-term Fed Funds Rate (FFR), 3.00% seems right; No one from Trump's Admin has spoken with him about taking the Fed's Chair - Q&A comment.

- US Powell provides additional information on the Fed building renovations, which 'need significant repairs;' Reiterates the Inspector General conduct fresh review of the project.

- (CA) Canada July CFIB Business Barometer: 50.9 v 47.5 prior.

- (US) Former Fed Gov Kevin Warsh: We are at transformational moment in US economic history because of good policy; Worried Fed might not see we are at front end of a productivity boom and too focused on old models, policies, and thinking around inflation - CNBC.

- (US) JUN IMPORT PRICE INDEX M/M: 0.1% V 0.3%E; Y/Y: -0.2% V 0.4%E.

- (US) JUN ADVANCE RETAIL SALES M/M: 0.6% V 0.1%E; RETAIL SALES (EX-AUTO) M/M: 0.5% V 0.3%E; (ex-auto/gas): 0.6% v 0.3%e; (control group): 0.5% v 0.3%e.

- (US) JULY PHILADELPHIA FED BUSINESS OUTLOOK: 15.9 V -1.0E (highest since Feb); Prices Paid: 58.8 v 41.4 prior; New Orders: 18.4 v 2.3 prior.

- (US) INITIAL JOBLESS CLAIMS: 221K V 233KE; CONTINUING CLAIMS: 1.956M V 1.965ME.

- (BR) Brazil Finance Min Haddad: Will overcome US tariffs, want fast solution.

- (US) Fed's Kugler (voter): Appropriate to hold rates steady for some time; Core goods inflation reflecting tariff pass-through; US labor market stable and resilient - speech text.

- (US) OMB Director Vought: Pres Trump was clear that he's unlikely to fire Powell.

- (US) JULY NAHB HOUSING MARKET INDEX: 33 V 33E.

- (US) MAY BUSINESS INVENTORIES: 0.0% V 0.0%E.

- (US) Fed’s Daly (non-voter): Still have some work to do on inflation; We're in a good place and need to finish the job.

- (US) MAY TOTAL NET TIC FLOWS: $311.1B V -$14.2B PRIOR; NET LONG-TERM TIC FLOWS: $259.4B V -$7.8B PRIOR.

Europe

- (UK) Goldman Sachs: Does not expect BOE to cut rates at the Sept meeting v prior expectation for 25bps cut - US financial press.

- (PT) Portugal Jun PPI M/M: +0.9% v -0.1% prior; Y/Y: -3.0% v -3.0% prior.

- (EU) ECB's Villeroy (France): No easy fix for France's excessive deficit.

- (IQ) Iraq Cabinet: Kurdistan must deliver 230K bpd of oil to state oil marketer SOMO; Allocates 50K bpd for use in Kurdistan - press.

- (UK) Reportedly BOE is testing shock scenarios which include US dollar swap market drying up, following similar tests by ECB - press.

- (EU) EU said to offer US matching cuts in auto tariffs, abandoning more complex German system of a 'netting mechanism' – FT.

Levels as of 01:20 ET

- Nikkei 225 -0.3%, ASX 200 +1.5%, Hang Seng +0.8%; Shanghai Composite +0.3%; Kospi -0.3%.

- Equity S&P500 Futures +0.2%; Nasdaq100 +0.1%; DAX +0.5%; FTSE100 +0.2%.

- EUR 1.1593-1.1635; JPY 147.29-148.73; AUD 0.6482-0.6511; NZD 0.5929-5964.

- Gold flat at $3,344/oz; BTC +1.7% at 120.6K; Crude Oil +0.4% at $67.78/bbl; Copper +0.6 at $5.5333/lb.