Equities And Yields Move Higher As Trade Tensions Continue Between US And China

General Trend:

• Asian equity markets trade mixed; Shanghai Composite and Hang Seng pare gains
• Australian equities outperform, consumer discretionary companies gain amid M&A
• South Korean chipmakers rise after earnings/guidance from Micron
• South Korea sold 50-year bonds at lower yield
• New Zealand sold 20-year bonds at lower bid to cover and higher yield; yields rose following auction result
• BoJ official Funo noted ‘large’ downside risk to medium to long-term inflation expectations
• China Commerce Ministry confirms to issue new list related to foreign investment by July 1st
• Peso strengthens 0.2% after Philippines Central Bank raises rates
• Upcoming BoE meeting in focus
• Japan May CPI figures due on Friday’s session

Headlines/Economic Data

Japan

• Nikkei 225 opened -0.1%
• TOPIX Info & Communications index +0.7%, Real Estate +0.5%; Marine Transportation -0.9%, Securities -0.9%, Iron & Steel -0.8%
• Megabanks trade generally lower
• (JP) According to an IMF official Japan’s consumption tax should be raised to 15%; Social security cuts also needed to curb unsustainable debt – Nikkei
• (JP) Japan and EU to sign free trade agreement (FTA) on July 11th
• Toyota Motor, 7203.JP Said to have started reductions in sales and marketing costs, including cancellation of contracts with China unit of Dentsu – financial press
• (JP) Japan Investors Net Buying of Foreign Bonds: +¥1.49T v -¥488.5B prior week; Foreign Net Buying of Japan Stocks: -¥40.8B v -¥108.5B prior week
• (JP) Bank of Japan (BOJ) Funo: Reiterates need to patiently promote strong monetary easing under current framework
• (JP) BOJ Dep Gov Amamiya: Inflation is expected to elevated towards the 2% target; corporate sector’s price/wage setting remains cautious and prices have been weak relative to economic growth and labor market tightening – speaking at Shinkin banking convention
• (JP) Japan MoF sells ¥2.0T v ¥2.0T indicated in 0.10% (prior 0.10%) 5-yr bonds; avg yield -0.1130% v -0.1030% prior; bid to cover 3.88x v 4.22x prior

Korea

• Kospi opened 0.0%
• LG Display [034220.KR] declines over 3%; Speculated to consider offering early retirement to certain workers (South Korean Press)
• (KR) South Korea May PPI Y/Y: 2.2% v 1.6% prior
• (KR) North Korea Leader Kim was satisfied with trip to China – KCNA, North Korean state media
• (KR) Real estate market booming on China/North Korea border amid hopes of a peaceful peninsula – Nikkei
• (KR) South Korea June 1-20 Exports Y/Y: -4.8% v +14.8% prior; Imports Y/Y: +13.0% v 10.7% y/y
• (KR) South Korea sells KRW540B v KRW500B indicated in 50-yr bonds; avg yield 2.51% v 2.64% prior; bid to cover 2.0x

China/Hong Kong

• Hang Seng opened +0.2%, Shanghai Composite -0.1%
• Hang Seng Energy index -1%, Industrial goods -0.8%, Telecom -0.8%, Financials -0.6%
• (CN) China said to consider allowing pension funds to make investments overseas – China Daily
• (HK) Property developers in Hong Kong said to seek to rush sales of apartments ahead of vacancy tax – HK Press
• (CN) China PBoC Open Market Operation (OMO): Injects CNY100B in 7 and 14 day reverse repos v CNY100B injected in 7 and 14 day reverse repos prior: Net: CNY30B injection v CNY40B injected prior
• (CN) China PBoC sets yuan reference rate at 6.4706 v 6.4586 prior
• (CN) China PBoC expects banking system liquidity to rise further; reverse repo operations aim to stabilize end of June liquidity – financial press
• (CN) China Commerce Ministry: Have no choice in implementing new tariffs on certain US products in segments where China announced broader tariff cuts; hope US will be fair in its anti-dumping probe against Chinese firms
• (US) President Trump said to be considering plans to curb Chinese investment in more than 1,000 US companies – US press

Australia/New Zealand

• ASX 200 opened +0.2%
• ASX 200 Consumer Discretionary index +1.9%, Resources +1.1%, Financials +1%, REIT +1%
• Ramsay Health Care [RHC.AU] declines over 7% after cutting forecast
• Fletcher Building, FBU.NZ Affirms FY18 (NZ$) EBIT ex- B+I 680-720M (incl -660M); to announce new operating model July 1st, to reduce overhead by NZ$30M/yr – strategy day
• (AU) Australia Parliament passes income-tax package: includes A$144B in personal income tax cuts (over 10 years)
• (AU) Australia revised Espionage and Foreign Interference bill expected to pass parliament this week is angering China; Bill was introduced amid fears of Chinese meddling in Australia’s democracy – Press
• (NZ) NEW ZEALAND Q1 GDP Q/Q: 0.5% V 0.5%E; Y/Y: 2.7% V 2.7%E
• WOW.AU BP will not continue with proposed acquisition of petrol business
• Atlas Iron, AGO.AU Withdraws recommendation of Mineral Resources offer; recommends Hancock’s offer of A$0.042/share
• APN Outdoor, [+12%], APO.AU Receives indicative and non-binding proposal to be acquired by JCDecaux for A$6.52/shr valued at A$1.1B
• (AU) Reserve Bank of Australia (RBA) issues quarterly bulletins: Private Non-mining Investment in Australia and Labour Market Outcomes for Younger People
• (AU) Australia May RBA Govt FX Transactions (A$): -672M v -630M prior
• (NZ) New Zealand sells NZ$200M v NZ$200M indicated in 2.75% April 2037 bonds, avg yield 3.2631% v 3.2423% prior, bid to cover 1.2x x v 2.45x prior
• (AU) RBA Gov Lowe: Australia is hoping to extend its no recession streak; Confident we can return to 2.5% inflation; Sudden shift in trade policies is very worrisome; very concerned about big global event from trade – comments in Sintra (overnight)

North America

• US equity markets ended mixed: Dow -0.2%, S&P500 +0.2%, Nasdaq +0.7%, Russell 2000 +0.8%
• S&P500 Telecom +1.2%, Real Estate +1.1%
• (US) President Trump: Renegotiating trade deals left and right, was time to do something on trade deals; Will be very close to reaching 4% GDP
• Micron, MU Reports Q3 $3.15 v $3.14e, Rev $7.80B v $7.70Be
• (SA) Reportedly Saudi Arabia now seeking a 600-800K bpd production increase from OPEC+ producers – press
• (CN) State-controlled The Global Times: China could take action against US firms listed on the Dow Jones index if US President Trump continues to worsen trade tensions
• (CN) Executives from China Energy Investment Corp canceled a trip to West Virginia amid trade dispute; meeting was said to focus on a ~$84B investment for the state – financial press

Europe

• (UK) UK govt wins vote in parliament, defeating Brexit ‘meaningful vote’ amendment (As expected after compromise made earlier); PM May wins in narrow 319-303 vote
• (UK) Prime Min May: govt to publish an EU relationship white paper over next few weeks – press
• (EU) EU draft proposal on migrants: to strengthen external border protection; members agree to support migrant reception and resettlement outside of the EU – press
• (DE) Germany May Tax Rev +6.8% y/y – Finance Ministry
• (CN) China Commerce Ministry: Vice premier Liu He to attend June 25th meeting with Europe delegation in Beijing
• Daimler [DAI.DE]: Cut FY18 EBIT outlook

Levels as of 01:30ET

• Hang Seng -1.0%; Shanghai Composite -0.4%; Kospi -0.6%; Nikkei225 +0.7%; ASX 200 +1.1%
• Equity Futures: S&P500 +0.3%; Nasdaq100 +0.4%, Dax +0.4%; FTSE100 +0.3%
• EUR 1.1537-1.1600; JPY 110.32-110.74; AUD 0.7356-0.7381;NZD 0.6833-0.6880
• Aug Gold -0.6% at $1,266/oz; Aug Crude Oil -0.4% at $65.48/brl; Jul Copper -0.2% at $3.03/lb