Vol JP equities as LDP leadership battle heats up amid global political instability

Asia market update: Vol JP equities as LDP leadership battle heats up amid global political instability; ID Fin Min sacking raises fiscal concerns; FR PM expected to resign today.

General trend and developments

- A mixed session for Asian stocks saw the Nikkei initially rise +1% as it continued to hit fresh highs following PM Ishiba’s resignation yesterday, hitting 44,000 for the first time, as longer-end 30 and 40-year yields joined the belly of the curve in falling today. Advantest led Japanese chip-relateds up, +8%. However, Nikkei later lost all gains to be -0.4% on the day, coinciding initially with comments from Snr LDP politician Kono, then Fin Min Kato and trade rep Akazawa (see next para.).

- Senior LDP politician Taro Kono again reiterated his view that if the BOJ delays rate hikes it will boost inflation. Comments had extra bite as he also pondered whether to throw his hat into the ring for the LDP leadership race. Japan Fin Min Kato also said he may run for the LDP leadership.

- Beforehand, Japan OIS probabilities for a BOJ rate hike continued to plunge yesterday, with now only a 21.5% chance by October (vs 31% last Friday) and 48.5% chance by December (vs 55% last Friday). However, interestingly the Yen has held its ground since the initial fall at Monday’s open following PM Ishiba’s resignation. [In fact, JPY/USD now higher than prior to yesterday's sharp fall.].

- ASX struggled again, -0.7%, with REITs index -1.0% and Financials and Energy also weak. Australia Business and Consumer Confidence monthly figures both fell.

- Hang Seng continued higher, at one point hitting Oct 2021 highs at 26K, led by mainland property stocks (Country Garden +25%, Shimao +23%). Later pared most gains. (Shanghai itself -0.7%).

- Kospi outperformed Asia, +1.3% to approach all-time 2021 highs.

- Questions remain on what overseas political turmoil could mean for US trade framework agreements that the Trump administration has touted as meaningful trade deals. The French political situation going forward is currently unknown. Japan also has political uncertainty until a new PM is installed, while South Korea is raising some doubts about its US trade deal structure, citing the US-Japan template as “problematic”, particularly around the $350B Korean investment into the US needing (in Korea’s view) carve-outs to be designed and financing composition clarified - as opposed to loan-heavy commitments.

- Japan trade negotiator Akazawa confirmed that the US tariffs on Japanese goods, incl cars, will be lowered on Sept 16th.

- Samsung and Hynix both higher, with reports the US may provide China chip supply permits for both companies after losing their China chip waivers at end of August.

- New Zealand Q2 Manufacturing Activity fell sharply, with construction and manufacturing seeing the largest decreases in sales.

- Indonesia stocks fell (esp. banking stocks), bond yields rose and the Rupiah fell >1% with BI central bank intervention seen. Comes after the sudden sacking of Fin Min Indrawati, being replaced with Purbaya Yudhi. Markets concerned if Indonesia may loosen its fiscal discipline, particularly after the recent country-wide protests amid demands for more social spending.

- The White House preparing what is anticipated to be a report critical of the Bureau of Labor Statistics (BLS) and its job tracking methodologies.

- Spot gold continued to hit fresh record highs during the Asia session, as much as $3,650/oz.

- French PM Bayrou is expected to announce his resignation today after losing a confidence vote late yesterday, French time.

- US equity FUTs +0.1% during Asian trading.

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

- Wed Sept 10th KR Korea Aug Jobs, China Aug CPI, (Wed eve US Aug PPI).

- Thu Sept 11th (Thu eve ECB Rate Decision, US Aug CPI).

- Fri Sept 12th NZ Aug Business PMI, (Fri eve UK July GDP, US Michigan Sept Consumer Sentiment).

Holidays in Asia this week

- No holidays in Asia this week.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens -0.3% at 8,824.

- Australia Sept Westpac Consumer Confidence: 95.4 v 98.5 prior.

- Australia Aug NAB Business Confidence: 4 v 8 prior.

- Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 89.3 v 88.0 prior.

- New Zealand Q2 Manufacturing Activity Q/Q: -3.0% v 5.1% prior.

- ANZ.AU To reduce 3.5K workers in Australia by Sept 2026 and incur A$560M restructuring charges in H2.

- New Zealand DMO sells NZ$2.0B vs. >NZ$1.0B indicated range in 3.25% Sept inflation-indexed 2050 bond via syndication at 3.285%; spread +28bps [guided +28-36bps over the Sept 2040 inflation-indexed bond].

- New Zealand to publish 2024-25 Financial Statements on Oct 9th.

- Opposition Labour party said to be open to 'having a discussion' regarding changing rules for RBNZ to tolerate higher inflation - New Zealand press.

China/Hong Kong

- Hang Seng opens +0.3% at 25,711; Shanghai Composite opens -0.3% at 3,816.

- China said to speed up breakthroughs in high-performance chips - financial press.

- (US) FCC to withdraw recognition of 'bad labs' controlled by a foreign adversary nation [China].

- China Pres Xi: Should uphold multilateral trading system using WTO as its core and resist all forms of protectionism - BRICS summit virtual comments.

- China reportedly plans to set up trade adjustment assistance system – press.

- China said to revise bankruptcy law to improve market exit mechanism – press.

- China PBOC sets Yuan reference rate: 7.1008 v 7.1029 prior (strongest since Nov 6th, 2024).

- China PBOC Open Market Operation (OMO): Injects CNY247B in 7-day reverse repos; Net drains CNY8.7B v injects CNY8.8B prior.

Japan

- Nikkei 225 opens +0.7% at 43,932 - Fresh record high.

- Japan LDP Politician Taro Kono: Reiterates if BOJ delays rate hikes, would boost inflation - financial press interview.

- Japan Fin Min Kato said will carefully consider the possibility [was asked about entering the LDP leadership race].

- Japan trade negotiator Akazawa: Notes US tariffs on Japanese goods, incl cars, will be lowered Sept 16th.

- Japan LDP decides to hold 'full-spec' leadership vote [inline] - Japanese media.

- Reportedly Japan has hired energy consultancy Wood Mackenzie to assess a proposed 800-mile Alaska gas pipeline and LNG plant in a sign it is weighing support for the $44B project touted by Trump – press.

- Japan sells ¥3.5T vs. ¥3.5T indicated in 6-Month Bills; Avg Yield: 0.5135% v 0.4945% prior, bid-to-cover:3.99x v 3.39x prior.

- JPMorgan analysts: Japan’s equities stand to gain in the run-up to the ruling Liberal Democratic Party’s leadership vote, as focus will shift to growth strategies like fiscal expansion.

Korea

- Kospi opens +0.4% at 3,231.

- South Korea Pres Advisor: Trade talks with US being slightly delayed due to issue of FX from the $350B investment package - financial press.

- South Korea and the US to resume working-level talks on tariffs - Yonhap.

- South Korea Foreign Min: Trade talks with US being slightly delayed as a similar agreement to US-Japan's one would be problematic.

- North Korea's Kim: China Pres Xi is willing to strengthen strategic communications and cooperation with North Korea.

­- Reportedly US mulls annual China chip supply permits for Samsung and SK Hynix - press- South Korea Fin Min: FX will be included in trade deal announcement with US; In working-level talks with US over details of investment package included in trade deal.

- South Korea and Japan Defense Min reportedly agree on 'complete denuclearization' of Korean Peninsula - press.

Other Asia

- Indonesia (new) Fin Min Purbaya Yudhi: Fiscal policy to be a tool for stability, growth, welfare - comments at transition ceremony.

- IDR declines by >1.0%, Indonesia 5-year bond yield rises by 5bps; Indonesia Central Bank (BI) says 'in the market' to ensure the Rupiah moves at fundamental value.

- Thailand Central Bank (BOT): Closely monitoring THB currency (baht) and will curb excessive movements.

- Indonesia Pres Prabowo said to be looking to reshuffle Finance Ministry leadership: Removes Finance minister Sri Mulyani Indrawati; Appoints Purbaya Yudhi as Finance Minister (coming from Deposit Insurance Corp).

North America

- (MX) Mexico Finance Ministry: Presents 2026 budget proposal (delayed timing, as expected).

- OpenAI: Execs at co said to be 'rattled' by pressure in California on its for-profit conversion process; May move out of state - WSJ.

- (US) Long-Term Stock Exchange said to be in renewed attempt to end quarterly earnings reports – WSJ.

- (US) White House said to prepare issuance of a critical report on the Bureau of Labor Statistics (BLS) within weeks - WSJ.

- (CL) Chile Aug CPI M/M: 0.0% v 0.2%e; Y/Y: 4.0% v 4.2%e (back within target range for 1st time in 16 months).
(BR) Brazil Aug FGV Inflation IGP-DI M/M: 0.2% v 0.4%e; Y/Y: 3.0% v 3.2%e.

- (US) Trump admin asks Supreme Court to allow freezing of billions of US$ in foreign aid - Washington Post.

- (US) Aug Manheim wholesale used vehicle Index: 20.7.4 v 206.5 prior; 0% m/m; +1.7% y/y.

- (US) Aug NY Fed 1-year Inflation Expectations: 3.20% v 3.1% prior.

- (US) JULY CONSUMER CREDIT: $16.0B V $10.2BE.

- (BR) Brazil Pres Lula: BRICs is being targeted by illegal, unjustified practices; BRICs nations can lead the renewal of a multilateral trading system [overnight update].

Europe

- (IE) Ireland Aug Construction PMI: 45.9 v 47.1 prior.

- (UK) Aug BRC Sales Like-For-Like Y/Y: 2.9% v 2.0%e.

- (KZ) Kazakhstan committed to OPEC+ production and eager to compensate for overproduction of oil - Russian press.

- (US) Trump admin reiterates EU should stop buying Russian gas if it wants new sanctions on Putin - FT.

- (EU) EU said to seek cutting the time it needs to approve some significant risk transfers, in a move that could further boost the appeal of a popular tool to manage banks’ capital requirements - press.

- (PL) Poland Central Bank (NBP) Janczyk: May consider one more rate cut in 2025.

- (CN) EU said to consider sanctions on China and other states for importing Russian energy - FT.

- (FR) France PM Bayrou: Our future depends on mastering spending and debt; If we don't address our debt, we will no longer be able to borrow at all - comments ahead of confidence vote.

- (FR) French PM Bayrou loses confidence vote (as expected); will tender resignation tues morning.

- (EU) ECB moves to curb "black box" internal risk models in leveraged loan assessments - press.

Levels as of 01:20 ET

- Nikkei 225 -0.3%, ASX 200 -0.7%, Hang Seng +0.5%; Shanghai Composite -0.7%; Kospi +1.2%.

- Equity S&P500 Futures +0.1%; Nasdaq100 +0.1%; DAX -0.4%; FTSE100 -0.1%.

- EUR 1.1759.1778; JPY 147.04-147.56; AUD 0.6583-0.6610; NZD 0.5837-5952.

- Gold +0.4% at $3,693/oz; BTC +0.7% at $111,890; Crude Oil +0.7% at $62.72/bbl; Copper +0.3% at $4.5572/lb.