ASIA STOCKS: Kospi Slumps Over 3%, China Vows To Curb Disorderly Competition
Aug-01 04:20
Most major Asia Pac indices are lower, although there are pockets of strength in parts of South East Asia. US equity futures are down modestly after mixed late earnings on Thursday US time (better for Apple, while Amazon disappointed). Broader US equity sentiment looks a little shakier, after what looked like a key day reversal on Thursday. Markets are also digesting the reciprocal tariff announcements from the US. South Korean markets are the weakest performers, down over 3%.
- China and Hong Kong markets are down modestly at this stage, the CSI 300 off 0.25% to 4065, following a sharp fall yesterday. The SHI was last near 24728, off 0.20%. Headlines have crossed from China's NDRC, which has vowed to regulate disorderly competition in the economy. This has become a key focus point for policy makers. The NDRC also stated that the fourth tranche of support for consumers (via the trade in program), will be allocated in Oct. NDRC also stated it will provide support for jobs and domestic when needed (per BBG). Earlier, the S&P Mfg PMI fell more than expected and is now back in contraction territory.
- The Kospi has fallen over 3%, putting the index back near3135, with sentiment weighed by tax changes. BBG notes :"The threshold for capital gains tax on stock holdings would drop to 1 billion won ($714,250) from 5 billion won and the transaction tax would increase, according to proposals released by the finance ministry in Seoul on Thursday. Meanwhile, the top corporate tax rate would rise to 25% from 24%, reversing a cut by the previous administration." Offshore investors have sold over $500mn of local stocks today. Note from late May the Kospi was up over 25%, driving significant outperformance.
- The Taiex is down around 0.70% at this stage. Taiwan's reciprocal tariff rate of 20% is higher than Japan and South Korea's but the authorities have vowed to negotiate further.
- In South East Asia, Malaysia and Indonesia indices are up over 1%. For Indonesia we are still sub late July highs, while offshore investors have remained net sellers. Elsewhere, the tone is mostly softer, although losses are modest at this stage.
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BONDS: NZ-US 10Y Differential In the Top Half Of This Year’s Range
Jul-02 04:12
NZGBs are richer today, with benchmark yields 2bps lower. The NZGB 10-year has slightly outperformed US 10-year since yesterday’s close, with the NZ-US yield differentials 2bps tighter on the day.
- At +25bps, the NZ-US 10-year differential is in the top half of the -20bp to +40bps range seen this year.
- A simple regression analysis of the 3-month forward swap rate spread (1Y3M) over the past 18 months indicates the 10-year yield differential is around 7bps below its estimated fair value of +32bps.
- Notably, the regression error has fluctuated within a range of ±15bps over the past year, highlighting some variability in the relationship.
- The 1Y3M differential continues to be a key driver of market expectations for long-term yield convergence.
Figure 1: NZ-US 10-Year Yield Differential
Source: Bloomberg Finance LP / MNI
CHINA: Bond Futures Strong as OMO Withdraws Liquidity
Jul-02 03:58
- China's bond futures rallied in the morning session as the Central Bank withdrew liquidity during the OMO.
- The 10yr future is up +.10 to 109.08, following on from yesterday's rally. The move sees the 10yr trade above the 20-day EMA of 108.99.
- The 2yr future +0.02 to 102.50 to trade through the 20-day EMA of 102.49 and approach the 50-day EMA of 102.51
- The 10YR government bond is lower in yield by -0.05bps at 1.64%
JGBS: Futures Slightly Weaker, Heavy US Calendar Before Long Weekend
Jul-02 03:39
In early afternoon trade, JGB futures weaker, -5 compared to the settlement levels, after reversing modest overnight gains.
- Japan’s monetary base fell 3.5 percent in June from a year ago.
- Japan’s super-long bonds are set to remain under pressure in the medium term as local life insurers may offload holdings to sidestep impairment losses on deeply discounted debt. (per BBG)
- (Bloomberg) -- Japan will continue actively negotiating tariffs in good faith with the US for both countries’ mutual benefit, Deputy Chief Cabinet Secretary Kazuhiko Aoki says at a regular press conference on Wednesday.
- Cash US tsys are little changed in today's Asia-Pac session after yesterday's twist-flattener. Wednesday's US data focus is on MBA Mortgage Applications at 0700ET, Challenger Jobs at 0730ET followed by ADP Employment Change at 0815ET. No Fed scheduled Fed speakers. Thursday is a heavy data day with NFP added due to Independence Day holiday closure on Friday.
- Cash JGBs are little changed across benchmarks out to the 10-year and ~1bp richer beyond. The benchmark 10-year yield is 0.5bp higher at 1.40% versus the cycle high of 1.596%.
- The swaps curve has twist-steepened, with rates 1bp lower to 1bp higher. Swap spreads are tighter out the 10-year and wider beyond.
