CHINA: Bond Futures Lower in Morning Session

The Asia-Pac USD/JPY range has been 148.29 - 148.71, Asia is currently trading around 148.45, -0.05%. USD/JPY continued to build on its momentum higher as the USD shorts reduce risk heading into an important week for risk. Corporate month-end today will add to the headwinds for the USD shorts. A move back above the highs for July would turn the focus towards the pivotal 151.00/152.00 area.

• The Japan Times via BBG - “In an annual white paper on Tuesday the government underlined the need to take all possible measures to realize wage increases that outpace inflation. In an annual white paper on Tuesday the government underlined the need to take all possible measures to realize wage increases that outpace inflation.”
• "X-BOJ DEPUTY GOVERNOR NAKASO: DOLLAR TO RETAIN SUPREMACY AS KEY GLOBAL CURRENCY BUT 'CRACKS' APPEARING AS INVESTORS DIVERSIFY INTO OTHER CURRENCIES.  BOJ LIKELY TO RESUME INTEREST RATE HIKE IT RESTORES CONFIDENCE THAT ECONOMY, INFLATION WILL MOVE IN LINE WITH PROJECTIONS. BOJ MUST BE VIGILANT TO UPSIDE RISKS TO INFLATION AS RISING FOOD PRICES COULD LEAD TO OVERSHOOT IN INFLATION EXPECTATIONS" RTRS
• Options : Close significant option expiries for NY cut, based on DTCC data: 146.65($823m).Upcoming Close Strikes : 149.00($1.16b July 30), 147.00($1.52b Aug 1), 146.00($1.43b Aug 1) - BBG.
• CFTC data shows Asset managers surprisingly added slightly to their JPY longs +72326( Last +71610), while leveraged funds have slightly reduced their newly built short JPY position -11571(Last -12606).

Fig 1 : USD/JPY Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

Most regional Asia Pac markets are down in the first part of Tuesday trade. Losses aren't large, but outside of South Korea and Malaysia, trends are negative throughout the region. This follows and overnight session where US markets modestly outperformed EU weakness. So far today, US equity futures are modestly higher, with Nasdaq futures slightly outperforming. This comes ahead of month end late this week. 

• Earlier remarks from US Commerce Secretary Lutnick stated that Trump is considering a few deals before the Aug 1 deadline, he will then decide on the unilateral tariff rate. Lutnick stated that an extension of trade truce was likely in terms of the current meetings under with China officials. Trump also pushed back on the idea he was pursuing a summit with China President Xi.
• The China CSI 300 is off a touch, but still close to recent highs. The HSI is down around 1%, but still above the 25300 level. Japan markets are also weaker, the Topix off close to 0.85%. Proximity to earnings outcomes and the Fed decision/data is being cited as a headwind for these markets.
• Taiwan's Taiex is down around 0.85% as well, after a strong run higher in recent weeks. The Kospi is bucking these trends, up nearly 0.60% and firmly above the 3200 level. Earlier we had headlines of corporate tax increases and changes to the capital gains tax, but these shifts have been flagged in the local media prior to today, which may be limiting the market impact.
• In South East Asia, most markets are down, except for Malaysia. Losses are modest though at this stage. Thailand markets have returned, unable to build on recent positive momentum. Thailand has accused Cambodia of violating the recent ceasefire agreement, while a meeting between the countries respective militaries has been postponed. 

The AUD/USD has had a range of 0.6512 - 0.6530 in the Asia- Pac session, it is currently trading around 0.6520, -0.02%. The pair could not hold onto its early gains yesterday and slid lower as the USD bounced strongly across the board. The pair failed to gain any momentum above 0.6600 last week and now awaits a very busy calendar this week which could have meaningful implications for risk. Locally the Australian Q2 CPI tomorrow will be closely watched and could provide a catalyst for some movement. Worth keeping in mind it is corporate month-end today and this could see some further headwinds for USD shorts. First support around 0.6450 then the more important 0.6350 area.

• AUSTRALIA: Q2 Core Inflation Expected To Be 0.1pp Above RBA Forecast At 2.7%. Q2 CPI prints Wednesday and will be monitored closely given that the RBA relies on this series with the monthly version not yet complete (due to take place on November 26). Headline inflation continues to be distorted by federal & state government electricity rebates and so attention will remain on the underlying trimmed mean. The RBA’s May forecast was for 2.6% y/y and so a print close to this would likely result in an August cut but steady around Q1 may add doubt.
• CBA Warns Higher CPI Print Could Keep RBA Cautious. A 2.8% print could “be a somewhat awkward 0.2ppt above” the RBA’s latest forecast, but CBA would still expect a 25bp cut on August 12 but see the “decision as not as clear cut as current market pricing suggests”.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6600(AUD968m), 0.6400(AUD323m). Upcoming Close Strikes : 0.6550(AUD1.01b July30), 0.6600(AUD1.38b July 31), 0.6465(AUD1.01b July31) - BBG
• CFTC Data shows Asset managers added a decent clip to their shorts -53959(Last -38267), the Leveraged community reduced their own shorts to -12010(Last -20048).
• AUD/JPY - Asia-Pac range 96.68 - 96.95, Asia is trading around 96.80. The pair could not hold above 97.00 yesterday. The support between 95.00 - 96.00 held very well last week and the pair is looking to regain its momentum for a move higher. The event-risk coming up this week could provide some short-term headwinds.

Fig 1: AUD/USD spot 120min Chart

Source: MNI - Market News/Bloomberg Finance L.P