EM ASIA CREDIT: Wipro: Acquires Samsung unit

ACGBs (YM +1.5 & XM +3.0) are slightly stronger.

• Westpac leading index fell 0.03% m/m in June versus a revised +0.05% in May.
• Cash US tsys are ~1bp cheaper in today’s Asia-Pac session after yesterday’s modest rally.
• US President Trump has posted via Truth Social that the US and Japan have reached a trade/investment deal. Trump stateed that Japan will invest $550bn into the US, while Japan will also open up access to cars, agriculture exports from the US. Japan will pay a 15% reciprocal tariff to US Trump notes. This is lower than the 25% rate which had been threatened.
• Cash ACGBs are 1-2bps richer with the AU-US 10-year yield differential at -8bps.
• The bills strip is slightly richer.
• RBA-dated OIS pricing is slightly softer across meetings today. A 25bp rate cut in August is given a 100% probability, with a cumulative 66bps of easing priced by year-end.
• Yesterday, the AOFM announced the issue by syndication of a new 4.25% 21 October 2036 Treasury Bond. The issue will be of a benchmark size. Initial price guidance for the issue is a spread of 3.5 to 6.5 basis points to the implied bid yield for the primary ten-year Treasury Bond futures contract. The issue is expected to be priced today.

This morning has seen US futures open slightly higher as President Trump announced a trade deal with Japan. The response is pretty muted considering how important this deal was seen, ESU5 +0.10%, NQU5 -0.05%. If risk continues to trade well then this dip in the JPY crosses should potentially find some demand from which to try higher again.

• EUR/JPY - Overnight range 171.37 - 172.93, Asia is trading around 172.10. This pair has had a decent move higher and has led the charge against the JPY longs. Short-term it is starting to look a little stretched but the direction is clear and should expect demand on dips. First support 170.00 area then the more important 168.00 area.
• GBP/JPY - Overnight 197.44 - 199.29, Asia trades around 198.25. The pair had a look below its support around 198.00 overnight but could not follow through. Can this trade deal give it the support it needs to regain momentum higher ? 
• NZD/JPY - Overnight range 87.45 - 88.03, Asia is currently dealing 88.00. The pair has seen upward momentum stall. The Support towards 87.00 needs to hold for the focus to remain on the 90.00/91.00 area.
• CNH/JPY - Overnight range 20.4034 - 20.6208 Asia is currently trading around 20.4500. This pair has pulled back from its highs but the pair still looks like it could continue to press higher. Price is now probing the support area between 20.3000/20.4000 where demand should start reemerging.

Fig 1 : CNH/JPY 120min Chart

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

A trade deal has been reached between the US and Japan ahead of the August 1 deadline, which has been seen as positive by markets with the Nikkei up 2.4% but USDJPY has given up its earlier gains and is little changed at 146.64. Imports from Japan, including autos, will face a 15% tariff down from the 24% announced in April but higher than the current average below 5%. This lower rate is in exchange for $550bn of Japanese investment in the US.

• Japan is a key US ally and so a deal was expected but the US’ 2024 merchandise deficit of $69.4bn with Japan, larger than the deficit with Canada, made it a target of President Trump’s protectionism. 4.5% of 2024 US imports came from Japan, the fifth highest.
• Japan has one of the higher export shares to the US at 19.9% of total goods shipped in 2024 but at only 3.5% of GDP, it has a relatively lower impact on the economy. 

Exports to the US (ex NAFTA) 2024 %

• However, certain sectors are highly exposed, especially autos. Japan is the second largest source of US personal vehicle & light truck imports at 16% of the total only behind Mexico’s 32%, and 8% of parts. Japanese autos will now face the agreed 15% duty below the universal 25% against all vehicle imports and as a result Toyota and Mazda shares have rallied. 

US imports personal vehicles & light trucks % total 2024

• Japan frontloaded shipments to the US through Q1 and Bloomberg container ship tracking data signal that continued in June ahead of the earlier July 9 deadline, but vessels departing for the US are down in July. However, the value of exports to the US fell 11.4% y/y in June after rising 10.5% y/y in February.