ASIA STOCKS: KOSPI Down Heavily on Tariff Concerns

ACGBs (YM flat & XM +0.5) are little changed after today's Q1 GDP release. 

• While Q1 GDP was weaker than expected and slower than Q4, it was impacted by extreme weather events in the quarter, which impacted exports and domestic demand. Thus, there is likely to be some positive payback in Q2 and so a reaction by the RBA to the weakness at its July 8 decision is not assured. Given special factors, it is likely to watch the monthly data closely for signs of a Q2 recovery.
• There was no progress on the productivity front in Q1, with GDP per hour worked posting its second consecutive unchanged quarter, leaving it down 0.9% y/y.
• Cash US tsys are flat to 1bp richer, with a flattening bias, in today's Asia-Pac session after yesterday's modest losses.
• Cash ACGBs are flat with the AU-US 10-year yield differential at -19bps.
• The bills strip is little changed.
• RBA-dated OIS pricing is little changed across meetings. A 25bp rate cut in July is given an 83% probability, with a cumulative 79bps of easing priced by year-end.
• Tomorrow, the local calendar will see Trade Balance and Household Spending data.
• The AOFM plans to sell A$800mn of the 1.50% 21 June 2031 bond on Friday.

The better than expected US labour market data dampened fears of an immediate economic downturn and gave stocks in Asia a boost today.  This added to the election result in South Korea which is widely tipped to be good for stocks and growth with various policies to be implemented that are viewed as pro-stocks and an expected new stimulus package.  

• The Hang Seng rose +0.72% today, the CSI 300 was up +0.52%, Shanghai up +0.43% and Shenzhen up +0.88%
• The KOSPI was closed yesterday and following the completion of the election, is up strongly today by +2.46%, it strongest single day gain for the year.  
• The FTSE Malay KLCI's poor run continued and is down -0.06% for a seventh successive day of declines.
• After three days of declines, the Jakarta Composite bounced back today to rise +0.53%.  
• The FTSE Straits Times in Singapore fell -0.13% and the PSEi in the Philippines was down -0.38%
• The NIFTY 50 is up modestly this morning by +0.15% after three successive days of falls.  

The Asia-Pac USD/JPY range has been 144.28 - 143.67, Asia is currently trading around 144.15. USD/JPY had a brief spike going into the Japanese Fix but drifted back off that high for the rest of our session before finding a bid late on. 

• Bloomberg - “"Japanese government bonds may find short-term support as authorities signal efforts to rein in volatility. A draft of the government's annual fiscal blueprint highlights the need to boost domestic holdings of JGBs to help cap rising yields, Bloomberg News reports. While the proposal lacks specifics, it underlines broader plans for fiscal consolidation and more stable issuance.”
• “The 10-year auction earlier this week drew strong demand, but attention now shifts to Thursday’s 30-year sale -- the true litmus test for investor appetite. Ultra-long bonds remain the market’s weak point, and their performance will determine whether recent volatility persists.”
• MNI POLICY: June Tankan To Offer BOJ View On Rate Hike Path. TOKYO - Bank of Japan officials will closely watch the upcoming June Tankan survey, due July 1, for signs of resilience in non-manufacturers' sentiment and upward revisions to major firms’ capital investment plans, which would support its baseline view for a gradual rate-hike path, MNI understands. 
• The market still seems very confident of a move lower in USD/JPY but with positioning quite large now we have seen the risks of pullbacks increase. Resistance around the 146.00 area held perfectly and the JPY bulls would be quite relieved as well as vindicated by the price action.
• A break below 142.00 in USD/JPY and all eyes will once again turn to the pivotal 140.00 area. Sellers should emerge on this bounce back towards the 144.00/145.00 area for now. The market might have to wait for Friday’s NFP print to see if it can make another attempt lower.

• Options : Close significant option expiries for NY cut, based on DTCC data: 143.50($698m), 145.00($629m). Upcoming Close Strikes : 140.00($2b June 5), 142.00($1.17b June 5), 148.00($1.21b June 5).

  Fig 1 : USD/JPY Spot Daily Chart

  

  Source: MNI - Market News/Bloomberg