China Confirms Will Not Implement Tariffs Against The US, Unless US Acts First

General Trend:

• Asian equity markets trade cautiously amid lack of US leads due to July 4th holiday
• Market participants are wondering if US and China tariff measures will take effect as scheduled (on Friday, July 6th)
• Shares related to China Conglomerate HNA Group decline following death of co-founder
• Hong Kong June PMI hits approx. 2-year low, trade concerns noted
• China Commerce Ministry reiterated it will have to respond to US tariffs, warned about global supply chain impact
• China yuan fixed at the strongest since Oct 2017
• PBoC’s 50bps RRR cut which was announced on June 24th takes effect today
• BOJ’s Masai reiterated the need to continue with monetary easing, played down impact on financial sector
• Japan 30-yr bond auction has highest bid to cover in over 1-year
• Philippines CPI hits a new multi-year high in June; data may lead to rate hike speculation (press article)
• Samsung Electronics expected to report prelim Q2 results on Friday
• US Fed Minutes and ADP Employment Change data due on Thursday

Headlines/Economic Data

Japan

• Nikkei 225 opened -0.1%
• TOPIX Retail Trade index -2.1%, Iron & Steel -1.4%, Electric Appliances -1.4%, Marine Transportation -1.2%, Securities -1%
• (JP) According to Nikkei, there is a split among Bank of Japan (BoJ) board members regarding the side-effects of easy policy
• (JP) Japan Investors Net Buying of Foreign Bonds: -¥293.4B v +¥27.4B prior: Foreign Net Buying of Japan Stocks: -¥299.8B v -¥483.5B prior (6th consecutive week of selling Japan equities); Japan investors bought ¥985B in foreign stocks (record high)
• (JP) Japan Ministry of Finance: FY17/18 Rev ¥58.79T, +6% y/y (26-yr high) – Yomiuri
• (JP) Bank of Japan (BOJ) Masai: 2% inflation target is considered a global standard, pursuing inflation similar to other countries will lead to FX stability
• (JP) Japan MoF sells ¥699.3B v ¥700B indicated in 0.8% (0.8% prior) 30-yr bonds; Avg yield: 0.704% v 0.707% prior; Bid to cover: 5.01x (over 1-year high) v 4.22x prior

Korea

• Kospi opened flat
• (KR) South Korea May Current Account Balance: $8.7B v $1.77B prior (75th straight monthly surplus); Goods Balance: $11.4B v $10.4B prior
• (KR) US officials said to have scrapped their all or nothing approach to North Korea denuclearization ahead of Pompeo’s visit – US press

China/Hong Kong

• Hang Seng opened -0.5%, Shanghai Composite -0.1%
• Hang Seng Energy index -2.2%, Materials -2.1%, Services -1.6%, Consumer Goods -1.4%, Financials -1%
• (CN) China to implement tariffs on $34B worth of US goods from midnight July 6th, according to press report; Separately, a China MOF official said China will not implement tariff measures ahead of the US
• (CN) China PBoC: Previously announced targeted RRR cut takes effect today, releasing CNY700B in liquidity
• (CN) PBOC recent monetary policy operations avoid SOEs; reiterates monetary policy is neither loosening nor tightening – China Financial News
• (CN) China Press Commentary: Depreciation of the Chinese yuan currency (CNY) is not a long-term trend
• (CN) Any currency intervention by China is seen as being smaller in scale versus 2015 – financial press
• (CN) Think tank China National Academy of Economic Strategy (NAES) sees H1 2018 GDP growth of 6.7% – Xinhua
• (HK) Hong Kong Jun PMI: 47.7 v 47.8 prior (~2-yr low)
• (CN) China PBoC Open Market Operation (OMO): skips OMO v injects CNY10B in 7-day reverse repos prior; Net: CNY140B drain v CNY80B drain prior
• (CN) China PBoC set yuan reference rate at 6.6180 v 6.6595 prior (strongest setting since Oct 2017)
• (CN) China Commerce Ministry (MOFCOM) Spokesman Gao Feng: US tariffs will hit global supply chains including foreign companies in China; 59% of the $34B in goods under US tariffs by foreign companies; H2 and 2018 foreign trade development will continue to be stable
• 521.HK The death of HNA Group’s Co-founder Wang Jian has led to uncertainty regarding planned asset sales – Japanese Press
• (CN) China NDRC issued draft rules related to investment in the auto industry
• (CN) China Hebei is planning to cut steel capacity by 40M tons in 3 years – Xinhua
• (CN) China Tangshan has issued order for local steel mills to meet emission standards – US financial press

Australia/New Zealand

• ASX 200 opened slightly lower
• ASX 200 Telecom index +1.7%, Financials +0.9%, Utilities +0.8%, Energy +0.4%
• (NZ) New Zealand Treasury: 11-month budget surplus NZ$5.23B, NZ$447M above forecast
• WOW.AU Expands partnership with Caltex; confirms to pursue IPO or sale of petrol business
• (NZ) New Zealand sells NZ$100M v NZ$100M indicated in Sept 2040 inflation-indexed bonds, avg yield 1.9517%, bid to cover 2.26x

Other Asia

• (MY) Malaysia sells 2048 bonds, avg yield 4.921%, bid to cover 1.87x
• (TW) Taiwan companies thought to be reconsidering where they will manufacture goods amid the US/China trade dispute – SCMP
• (PH) Philippines Jun CPI m/m: 0.6% v 0.4%e; y/y: 5.2% v 4.8%e
• (PH) Philippines Central Bank (BSP) Chief Espenilla: Higher June inflation is a set back, to review and update forecast of inflation path, will shape strength and timing of policy response
• Vietnam Central Bank said to have intervened in the FX market to support the Dong currency (VND) – Local Press

North America

• WTO releases report on trade restrictions among G20 nations: trade barriers being erected by major economies could jeopardize the global economic recovery and their effects are already starting to show

Europe

• (UK) PM May said to have asked Chancellor of the Exchequer Hammond and Business Sec Clarke to warn their colleagues of the dangers of pushing for a hard Brexit in a meeting Friday- UK press
• (UK) ECB Member Hakkarainen: 20 banks out of they 50 indicated they wanted to, have applied for a license to operate in the European Union in time to receive approval before Britain leaves the EU, deadline was end of June
• (RU) EU sanctions on Russia to be officially rolled over on Monday to the end of Jan 2019 – EU press
• (IR) Ireland Jun Consumer Confidence Index: 102.1 v 106.7 prior (13-month low)
• (EU) Some ECB members are said to be worried that investors don’t see a rate hike until late 2019, a hike as soon as Sept or Oct 2018 is possible depending on economic outlook at the time – financial press
• (DE) IMF Cuts German 2018 GDP to 2.2% (prior 2.5%); Raises 2019 forecast to 2.1% (prior 2.0%) – Article IV Consultation
• Executives from VW, BMW and Daimler to meet with US ambassador this evening in an effort to avoid US tariffs; US said to offer ‘zero tariffs’ – German press
• (EU) On Thursday, EU countries are expected to vote on measures to curb steel imports – financial press

Levels as of 01:30ET

• Hang Seng -1.2%; Shanghai Composite -0.8%; Kospi -0.8%; Nikkei225 -0.9%; ASX 200 +0.4%
• Equity Futures: S&P500 +0.1%; Nasdaq100 +0.0%, Dax -0.2%; FTSE100 -0.2%
• EUR 1.1650-1.1667; JPY 110.30-110.62; AUD 0.7361-0.7388;NZD 0.6751-0.6774
• Aug Gold +0.2% at $1,255/oz; Aug Crude Oil -0.5% at $73.77/brl; Sept Copper 0.0% at $2.86/lb