Trump tariff pause extended to China

Asia market update: Markets positive despite less-than-stellar US domestic data; Trump tariff pause extended to China; JP 10-yr auction best in 14 months; Focus on EU May CPI, US Apr JOLTS.

General trend

- Pres Trump again extended trade tariff pauses, this time for China (through to Aug 31st), helping stocks to the upside during the US session and on into Asia (Hang Seng outperforming +1.2%), despite worse than expected US Manufacturing data.

- Japanese 10-year govt bond yields fell 4bps back to 1.47% after today's 10-year JGB auction had a bid-to-cover above the one-year average and the highest since April 2024. For now alleviating fears of a failing long-term Japanese bond market - at least until Thursday's super-long 30-year JGB auction.

- USD/JPY continued to strengthen off recent lows as BOJ Gov Ueda testified in parliament.

- Unlike the national figures over the weekend, today's China May Caixin PMI for Manufacturing was only in the 48 handle, the first contraction in 8 months, and lowest since Sept 2022 (in the depths of severe Covid lock-downs).

- RBA Minutes showed that the board was open to no change, or cutting by 25 or even 50bps, but judged not yet time to move to expansionary monetary policy.

- The Australia Fair Work Commission increased Minimum Pay rates for 2025 by 3.5% across the board from July 1st. Tellingly, unlike the previous few years of inflation concerns, the AFWC determined that the RBA’s assessment that inflation has sustainably returned to its target range of 2–3% indicates that “this inflationary episode is now over.”

- Australia’s Q1 Current Account deficit worsened both for Q1 as well as revised worse for prior quarter.

- US equity FUTs -0.3% to -0.4% during Asian trading.

Looking ahead (Asian-weighted releases, using Asian time zone)

- Tue Jun 3rd (Tue eve EU May CPI, US Apr JOLTS).

- Wed Jun 4th AU Q1 GDP, (Wed night US May Services ISM, CA BOC Rate Decision, US Fed Beige Book).

- Thu Jun 5th AU Apr Balance of Trade, CN May Caixin Services PMI, (Thu night EU ECB Rate Decision).

- Fri Jun 6th JP Apr Household Spending, IN RBI Rate Decision (Fri US May Non-Farm Payrolls).

Holidays in Asia this week

- Mon Jun 2nd China, Malaysia, New Zealand.

- Tue Jun 3rd South Korea, Thailand.

- Fri Jun 6th Indonesia, Singapore, South Korea.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens +0.2% at 8,430.

- Australia Q1 Current Account (A$): -14.7B v -12.5B prior; Net Exports of GDP: -0.1% v -0.1% prior.

- RBA May minutes: board considered keeping rates unchanged, cutting by 25BPS or BY 50BPS.

- Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 86.4 v 87.0 prior.

- Australia Fair Work Commission: To increase 2025 National Minimum Wage and all Modern Award Minimum Wage rates by 3.5% (v +3.75% y/y); Effective July 1st, 2025.

- Reserve Bank of Australia (RBA) Asst Gov (Econ) Hunter: Higher US tariffs will put a drag on the global economy - Joining the Dots: Exploring Australia’s Links with the World Economy – speech in Brisbane.

- Australia sells A$1.2B vs. A$1.2B indicated in 3.75% Apr 2037 bonds; Avg Yield: 4.3877% v 4.3899% prior; bid-to-cover: 1.98x v 4.64x prior.

- New Zealand Q1 Terms of Trade Index Q/Q: 1.9% v 3.5%e.

- RBNZ announces changes to liquidity facilities; To discontinue weekly RB bill auctions.

China/Hong Kong

- Hang Seng opens +0.5% at 23,281; Shanghai Composite reopens -0.2% at 3,340.

- China May CAIXIN PMI Manufacturing: 48.3 V 50.7E (First contraction in 8 months, lowest since Sept 2022).

- TTN Research Alert: US Trump Admin’s frustration by lack of progress with China on trade may be due to a power vacuum in China, not intransigence by the China side.

- China Auto Dealers Association: Automakers should reasonably set annual production, sales targets; Should "resolutely" resist price wars - financial press.

- China PBOC expected to resume govt bond buying in Q3 - China press, citing analysts.

- US extends tariff pause on some Chinese goods to Aug 31st (from prior 90 day extension to Aug 14th) – press.

- HK$ HIBOR overnight interbank offered rate falls to record low of 0.0203% - financial press.

- US Pres Trump and China Pres Xi said likely to speak this week - CNBC cites White House official.

- Hong Kong Apr Retail Sales Value Y/Y: -2.3% v +3.2%e; Retail Sales Volume Y/Y: % v 2.6%e [overnight update].

- Fedex De minimis restriction hitting small customers in big way; See softness in good economy - investor conference comments [overnight update]

- China PBOC sets Yuan reference rate: 7.1869 v 7.1848 prior (Friday).

- China PBOC Open Market Operation (OMO): Injects CNY455B in 7-day reverse repos; Net drains CNY376B v injects CNY149B prior.

Japan

- Nikkei 225 opens +0.3% at 37,577.

- Japan May Monetary Base Y/Y: -3.4% v -4.8% prior.

- (JP) Japan sells ¥2.6T VS. ¥2.6T indicated in 10-year JGB bonds; AVG yield: 1.5120% V 1.2740% prior; bid to cover: 3.66X V 2.54X PRIOR (Highest since Apr 2024).

- Japan BOJ Gov Ueda: Japan's economy is recovering moderately, despite some weakness seen - parliamentary testimony.

- Japan govt draft document; Aim to achieve primary balance surplus as early as possible in FY25-26.

- BOJ Executive Dir Nakamura: Tariffs are likely to slow wage hike momentum.

- Japan Trade Negotiator Akazawa: Aiming to have cabinet discussions towards US trade deal - Japanese media.

- Former BOJ Board member: Japan BOJ likely to stop bond purchase cuts 'next year' - financial press.

- Japan PM Ishiba: To consider dissolving parliament if no-confidence is submitted - Japanese press.

- Former BOJ Board member: Japan BOJ likely to stop bond purchase cuts 'next year' - financial press.

Korea

- Kospi closed for Presidential election.

Other Asia

- Taiwan Semi: CEO: Co to see 'steady growth' in 2025; Affirms Rev to grow 'mid-20%' in USD terms in 2025 - AGM comments.

- Malaysia May PMI Manufacturing: 48.8 v 48.6 prior (12th month of contraction).

- Thailand May Business Sentiment Index: 46.7 v 47.1 prior [overnight update].

- Singapore May Purchasing Managers Index (PMI): 49.7 v49.6 prior [overnight update].

North America

- UK Trade Min Reynolds to meet USTR Greer on implementing US-UK trade deal (time frame uncertain] - financial press.

- (US) Trump administration said to request countries' best offers in tariff discussions by Weds (June 4th) - press cites draft request letter

- (CA) Canada May Manufacturing PMI: 46.1 v 45.3 prior.

- (US) May final S&P Manufacturing PMI: 52.0 V 52.3E (confirms 5th month of expansion); Delivery delays were at their most acute since October 2022.

- (US) MAY ISM Manufacturing: 48.5 V 49.5E; Contraction in most of the indexes that measure demand and output slowed, while inputs have started to weaken.

- (US) Apr construction spending M/M: -0.4% V 0.2%E.

- (MX) Mexico Pres Sheinbaum: Awaiting publication of US steel tariffs on June 4th.

- (US) Fed's Logan (non-voter): Despite uncertainty, the overall economy is resilient; The labor market is stable; Inflation is still somewhat above target.

- (MX) Mexico May Manufacturing PMI: 46.7 v 44.8 prior (2nd month of contraction).

- (US) Atlanta Fed GDPNow: Raises Q2 GDP estimate from 3.8% to 4.6%.

- (US) Plaintiffs in Trump tariff cases ask court to halt tariffs during appeals process.

- (US) Fed's Goolsbee (voter): So far we've had excellent inflation reports with surprisingly little direct impact from tariffs; Don't know if that will remain true over next 1-2 months - Q&A responses.

- (US) Fed Chair Powell: (US) Fed Chair Powell: Does not comment on monetary policy, economic outlook in prepared remarks.

Europe

- India, Europe said to have agreed on "about 50%" of trade deal talk "chapters" - FT.

- (IE) Ireland May PMI Manufacturing: 52.6 v 53.0 prior (5th month of expansion).

- (UK) BOE's Mann (hawkish dissenter): 10-year gilt has been dramatically affected by US spillovers; Trade diversion may not feed through to UK consumers - financial press, comments at DC Fed Conference.

- (IR) US Pres Trump: Will Not allow any enrichment of uranium for Iran - Truth Social post.

- (EU) Trade Commissioner Sefcovic to meet USTR Greer in Paris on Weds (June 4th); EU ready to impose counter tariffs if talks fail.

- (IR) Iran drafting negative response to US nuclear proposal and may be considered rejection of 'completely one-sided' US plan - press cites Iranian diplomat.

- (UK) BOE's Mann (hawkish dissenter): Must consider the interactions of QT and rate decisions - speech text.

Levels as of 01:20 ET

- Nikkei 225 +0.1%, ASX 200 +0.5%, Hang Seng +1.2%; Shanghai Composite +0.4%; Kospi closed.

- Equity S&P500 Futures -0.4%; Nasdaq100 -0.3%; DAX +0.2%; FTSE100 -0.2%.

- EUR 1.1416-1.1465; JPY 142.38-143.27; AUD 0.6501-0.6564; NZD 0.6010-0.6055.

- Gold -0.3% at $3,386/oz; Crude Oil +0.4% $62.78/bbl; Copper -2.5% at $4.7368/lb.