ASIA STOCKS: Japan Outperforms, Softer Trends Elsewhere
Asian equities are mostly weaker, outside of Japan market gains. This comes despite a much better US futures backdrop, although this is largely focused on the tech side, following late positive earnings/outlook news from both Meta and Microsoft in the US on Wednesday. Nasdaq futures were last up +1.35%, while Eminis were around +0.95% higher.
- Japan markets are seeing the Topix up close to 0.80%, while the NKY 225 is around 0.90% higher. Some positive spillover from US futures moves may be in play, while earlier the BoJ held rates steady, as widely expected. The level of uncertainty surrounding the trade outlook was described as high, but this was down from the previous meeting's description of 'extremely high'.
- The Taiex is also tracking slightly firmer, last up around 0.25%. The Kospi is struggling though, down close to 0.45%. This comes despite a positive trade deal outcome, at least at face value, with the US, where the reciprocal tariff rate will be 15%.
- China and Hong Kong markets are both down a little over 1% at the lunch time break. In Wednesday US trade the Golden Dragon index continued to decline, down a further 1.82% (marking the fifth straight session decline). Earlier data showed slightly softer than expected official PMI reads for China in terms of July. Manufacturing remains in contraction territory.
- In South East Asia, markets are weaker, although losses are not beyond 1% at this stage. Thailand and Malaysia await tariff level announcements from the US. US President Trump has doubled down on criticism of Indian tariffs and their business with Russia. Benchmark Indian markets are off a little over 0.60%.
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JPY: Asia Wrap - USD/JPY Tests Lower After Strong Tankan, Finds Demand 143.50
The Asia-Pac USD/JPY range has been 143.44 - 144.08, Asia is currently trading around 143.85, -0.15%. USD/JPY has tested lower in our session, a strong Tankan survey has the market contemplating a potential rate hike once more. The bias remains to sell USD’s on rallies, 144.50/145.00 first resistance with the focus now turning back towards the 142.00 area.
- The Q2 Tankan survey delivered some positive upside surprises. The large manufacturing index rose to 13, versus 10 forecast and 12 prior. The outlook for this segment was also better than forecast, printing at 12 (9 was forecast and 12 was the Q1 outcome). The all industry capex estimate was also stronger than expected, coming in at 11.5%, versus 10.0% forecast (3.1% was the prior outcome). For large non-manufacturing firms, the results were slightly less positive, with headline index at 34, in line with forecast, while prior was 35. The outlook printed at 27, below the expected 29 outcome (28 was recorded in Q1).
- AKAZAWA: “TWO SIDES ARE NOT ON THE SAME PAGE ON SOME MATTERS, WON'T COMMENT ON WHETHER RICE IS PART OF U.S. TARIFF TALKS, STILL EXPLORING IF POSSIBLE TO REACH TRADE AGREEMENT" - BBG
- The rejection of 148.00 points to a potential top being in place now and shows just how quick the market is to return to selling USD’s.
- USD/JPY is drifting back to the lower band of its 142.00 - 148.00 range, while the USD continues to move lower this should continue to see sellers on any bounce for now.
- CFTC data shows Asset managers paring back their JPY longs very slightly +93003, while leveraged funds added to their longs again trying to rebuild their position +15935.
- Options : Close significant option expiries for NY cut, based on DTCC data: 145.00($1.02b), 143.50(559m).Upcoming Close Strikes : 140.00($1.11b July3), 139.75($1.05b July 3).
Fig 1 : USD/JPY Spot Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
AUD: Asia Wrap - AUD/USD Falters Towards 0.6600
The AUD/USD has had a range of 0.6554 - 0.6584 in the Asia- Pac session, it is currently trading around 0.6570, -0.2%. The pair has drifted lower today, the headwind looks to be from AUD/JPY selling. US Equity futures have also drifted lower in Asia, ESU5 -0.1%, NQU5 -0.1%. CFTC data out for last week shows both Asset Managers and Leveraged Funds added to their AUD short positions, given how poorly the USD is trading one would expect most of these shorts are being expressed in the crosses where the AUD has traded poorly particularly against the EUR and GBP. Should AUD/USD begin to build momentum higher even these crosses will start to be challenged.
- CHINA CAIXIN PMI Surprises to the Upside: China's CAIXIN PMI Manufacturing in June rose to 50.4, ahead of an expected 49.3. The index was considerably up from the prior month's result of 48.3. This data captures the period post the agreement between the US and China on tariffs and potentially points to an improvement in activity.
- (Bloomberg) - "Australian home prices climbed a fifth straight month, fueled by the Reserve Bank’s two interest-rate cuts this year and expectations of more to come."
- The AUD/USD is breaking through the top of its recent range as the pressure on the USD increases.
- The AUD needs a sustained break above 0.6550/0.6600 to potentially start building momentum for an extended move higher, a close back above 0.6600 and the focus would turn back to 0.6900/0.7000.
- Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6560(AUD874m). Upcoming Close Strikes : 0.6750(AUD1.27b July 2), 0.6600(AUD2.55bm July4).
- AUD/JPY - Today's range 94.24 - 94.82, it is trading currently around 94.40, -0.40%. Choppy price action as the pair establishes a range between 92.00 - 96.00. Momentum higher seems to be stalling, a break sub 0.9350 could signal a top is in place.
Fig 1: AUD/USD spot Weekly Chart
Source: MNI - Market News/Bloomberg Finance L.P
US: Trump Urges Republicans To Pass Tax Bill
US President Trump has posted Truth Social, urging Republicans to pass the tax bill. He notes failure to pass it will result in a 68% tax increase. See below for the full post.
"Republicans, the One Big Beautiful Bill, perhaps the greatest and most important of its kind in history, gives the largest Tax Cuts and Border Security ever, Jobs by the Millions, Military/Vets increases, and so much more. The failure to pass means a whopping 68% Tax increase, the largest in history!!!"
