SOUTH KOREA: July Retail Sales Post Strong Gains Ahead of BOK Decision

ACGBs (YM -0.5 & XM +0.5) are little changed.

• Cash US tsys are little changed in today's Asia-Pac session.
• The focus of this week will be Wednesday’s Q2 CPI data, which is expected to show the underlying trimmed mean measure making further progress towards the band mid-point of 2.5%. Bloomberg consensus is forecasting a 0.7% q/q rise, bringing the annual rate to 2.7% after 0.7% & 2.9% in Q1. This is slightly higher than the RBA’s May Q2 forecast of 2.6%. Services developments will also be monitored. The RBA is expected to cut rates 25bp on August 12.
• Cash ACGBs are unchanged with the AU-US 10-year yield differential at -4bps.
• The bills strip is slightly weaker, with pricing flat to -2.
• RBA-dated OIS pricing is slightly firmer across meetings today. A 25bp rate cut in August is given a 92% probability, with a cumulative 57bps of easing priced by year-end (based on an effective cash rate of 3.84%). 

In Tokyo morning trade, JGB futures are stronger and at session highs, +31 compared to settlement levels.

• Today, the local calendar will be empty ahead of 2-year supply on Tuesday.
• This morning has seen US equity futures gap higher in response to the US-EU trade deal.
• (Bloomberg) Japanese stocks edged lower as semiconductor-related stocks declined ahead of reporting earnings this week. Uncertainties over Prime Minister Shigeru Ishiba’s political future also weighed on investor sentiment.
• Cash US tsys are little changed in today’s Asia-Pac session.
• Cash JGBs are 4bps richer to 2bps cheaper across benchmarks, with the futures-linked 7-year outperforming. The benchmark 10-year yield is 2.6bps lower at 1.579% versus the cycle high of 1.616%.
• Two-year JGB auctions typically pass under the radar, but Tuesday’s will be spicier than usual as it lands ahead of a Bank of Japan meeting, which is set to deliver guidance on the next policy tightening. (BBG)
• Swap rates are 2bps lower to 1bp higher, with a steeper curve. Swap spreads are mixed.

Taiwan net equity flows remained the standout into the end of last week. The 5-day sum was +$1.422bn. This is down slightly from recent highs (just above $2.5bn), but the 5-day rolling sum of net inflows has been positive since late June, indicating consistent positive inflow momentum, as Taiwan equities ride firmer chip/AI sentiment. The Taiex sits just off multi month highs in latest dealings this morning. 

• Inflows also remained positive into South Korea, with last week seeing slightly stronger inflow momentum at +$1.64bn compared to Taiwan. Still, Taiwan maintains better inflow trends more broadly. The Kospi still struggles above the 3200 level though and has been volatile in the first part of trade today. We shot higher on positive Samsung chip order headlines, but haven't been able to sustain these gains.
• Focus also remain on US-South Korea trade negotiations ahead of the Aug 1 deadline this Friday, with focus on US access to South Korean agricultural markets, while South Korea may also invest into US shipbuilding.
• Recent positive Thailand equity inflow momentum slowed on Friday, with border clashes between Thailand and Cambodia not likely helping sentiment. Still net outflows were very modest and remain up strongly in the past 5 days. Note Thailand markets are closed today.
• Elsewhere flow trends were generally negative, with India still struggling to see upside momentum. 

Table 1: Asian Markets Net Equity Flows 

Source: Bloomberg Finance L.P./MNI