JGB yields drop despite weaker demand at 30-yr auction – KR equities barrel ahead

Asia market update: Trade remains focal point; Suzuki suffers CN rare earth restrictions; Upcoming JP/US trade talks; Will Trump/Xi speak?; JGB yields drop despite weaker demand at 30-yr auction; KR equities barrel ahead; Trump travel bans back; Focus on EU ECB Rate Decision.

General trend

- Late in the Asia session, Suzuki Motors reported to have had to stop production of its popular Swift model due to China rare earth restrictions. Fears likely being echoed by automakers worldwide.

- In Trade News: Vietnam Trade Ministry said it replied to the US trade requests; Japan Trade Negotiator Akazawa said it was still not decided who he would meet in the US on his most current trip to DC.; Was there / wasn’t there a phone call between Pres Trump and Pres Xi of China – or is one still to come? Pres Trump dropped a Truth Social post last night about how difficult China Pres Xi is to make a deal with. Press Sec Leavitt did note yesterday that a call was coming ‘very soon’. Market unresponsive.

- Today’s much anticipated JP 30-yr JGB auction was better supported than some had recently feared, but was still below the 12-month demand ratio, with the weakest bid-to-cover since 2023 and a wider tail of 49bps compared to last month’s auction. May have been supported somewhat by rumors yesterday of the BOJ considering to slow the pace of bond tapering next year, as 30-yr yields fell -6bps pre- and -7.5bps post-auction.

- South Korea’s Kospi again tore ahead, +1.8%, outperforming Asian equities post-election amid promises of economic stimulus and emergency plans by new Pres Lee - and backed up by the Bank of Korea warning that the economy is mirroring Japan’s, thus urging ‘bold reforms’.

- (Note: Australia ASX -0.1% at time of writing looks like missing out on closing above 8555.80 and what would be a record high close. Intra-day all-time-high of 8,615 was recorded Feb 14th).

- Japan’s base pay grew faster in April, with some analysts suggesting this is the effect of a second year of high (>5%) "Shunto" wage talks in March – and potentially boosting the case for further BOJ monetary tightening.

- China May Caixin PMI Services kept its 28th month of expansion.

- Australia April Trade surplus slightly below estimates, with exports in negative territory, while Australia April Household Spending saw a rise in spending on services being partly offset by a fall in goods spending.

- Geologists said to have discovered world’s largest Iron deposit in West Australia; Estimated to be worth ~$6T and with the potential to impact world's iron production sector.

- Trump 1.0 era reprised, with Pres Trump signing proclamation to ban travel from 'some' countries. Full travel ban on people from 12 countries, partial restriction on 7 countries to go into effect Monday. “Very high risk” countries to the US banned include Iran, Afghanistan, Burma and several African nations, while “restricted” nations include Venezuela, Cuba, Turkmenistan and more African nations.

- US equity FUTs -0.1% to -0.2% during Asian trading.

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

- Thu Jun 5th (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 flat at 8,540.

- Australia Apr Trade Balance (A$): 5.4B v 6.0Be.

- Australia Apr Household Spending M/M: 0.1% v 0.2%e; Y/Y: 3.7% v 3.6%e.

- Australia sells A$150M v A$150M indicated in 0.25% Nov 2032 Indexed Bonds: Avg Yield 1.8679% v 1.9425% prior: bid-to-cover: 4.04x v 6.08x prior.

- Geologists discover world’s largest Iron Deposit in West Australia; Estimated to be worth ~$6T and potential to impact world's iron production the global economy - science and materials press.

- New Zealand May ANZ Commodity Price M/M: +1.9% v 0.0% prior.

- New Zealand Ministry of Energy: NZ gas reserves 'declining faster than forecast' - financial press.

- New Zealand Q1 Volume of All Buildings Q/Q: 0.0% v -5.0% prior.

- New Zealand Government 10-Month Financial Statements; Budget deficit narrows more than forecast by NZ$82M to NZ$7.44B.

China/Hong Kong

- Hang Seng opens +0.7% at 23,828; Shanghai Composite opens +0.1% at 3,378.

- China May CAIXIN PMI services: 51.1 V 51.0E (28th month of expansion).

- Follow up: China Public Security Bureau: Issues bounty for Guangzhou cyberattack; Suspects links to Taiwan authorities - China state media.

- Apple and Alibaba's AI China rollout said to be delayed by trade war - FT.

- Reportedly China introduced national rare earth magnet tracking system - press.

- (US) Pres Trump: I like President XI of China, always have, and always will, but he is very tough, and extremely hard to make a deal with!!!

- China govt pledges to boost fiscal support for AI, seeking to increase innovation and application of AI products - press.

- China Preliminary May NEV Sales Y/Y: +38% v +37% prior – PCA.

- (US) Reportedly two Chinese student scientists accused of smuggling toxic fungus into US - UK press.

- China Commerce Ministry (MOFCOM): China hopes to resolve trade dispute with Europe - follows meeting with France Trade Min.

- China PBOC sets Yuan reference rate: 7.1865 v 7.1886 prior.

- China PBOC Open Market Operation (OMO): Injects CNY127B in 7-day reverse repos; Net drains CNY140B v drains CNY0.6B prior.

Japan

- Nikkei opens -0.5% at 37,581.

- Japan Apr labor cash earnings Y/Y: 2.3% V 2.6%E.

- Japan sells ¥800B VS. ¥800B indicated in 30-year JGB bonds; AVG YIELD: 2.9040% V 2.9410% prior; bid-to-cover: 2.92X V 3.07X prior (2.92x vs 12-month avge 3.39x, weakest demand ratio since 2023).

- Japan releases weekly flows data [period ended May 30th]: Foreign buying of Japan equities: ¥336.1B v ¥309.3B prior; Japan buying of foreign bonds: -¥118.0B v ¥100.4B prior.

- Suzuki Motors stops production of Swift model because of China's rare earth restrictions - Nikkei.

- Japan Trade Negotiator Akazawa: Still not decided on who to meet in the US - financial press.

- BOJ said to be considering slowing the pace of bond tapering next year - press [overnight update].

Korea

- Kospi opens +0.7% at 2,790.

- South Korea Q1 preliminary GDP Q/Q: -0.2% V -0.2% advance; Y/Y: 0.0% V -0.1% advance.

- South Korea May Foreign Reserves: $404.6B v $404.7B prior.

- South Korea ruling party Democratic Party (again) proposes Commercial Act revision - financial press.

- Bank of Korea (BOK): South Korean economy mirroring Japan's, urges 'bold' reforms - Yonhap.

- North Korea leader Kim met with Russia's top security official Shoigu - North Korea state media.

- China reportedly willing to promote bilateral ties with South Korea - state TV [overnight update].

Other Asia

- Singapore Apr Retail Sales M/M: +0.3% v -2.7% prior; Y/Y: 0.3% v 1.7%e.

- Philippines May CPI M/M: -0.1% v -0.1%e; Y/Y: 1.3% v 1.3%e (3rd month with annual pace below target range).

- Follow up: Vietnam Trade Ministry: Has sent document replying to US trade requests.

North America

- Google CEO: Will grow engineering staff numbers in the next year; Need regulations to tell what is a "true deep fake" - financial press.

- Amazon said to be preparing to test humanoid robots for package deliveries - The Information.

- (US) President Trump signs proclamation on Wed to ban travel from 'some' countries – CBS.

- (US) Fed's Kashkari (non-voter): Still not all the way back to 2% inflation target - CNN interview.

- (US) MBA Mortgage Applications w/e May 30th: -3.9% v -1.2% prior (3rd straight weekly decline).

- (US) May ADP employment change: +37K V +114KE; After a strong start to the year, hiring is losing momentum.

- (CA) Canada Q1 Labor Productivity Q/Q: 0.2% v 0.1%e.

- (CA) Canada May Services PMI: 45.6 v 41.5 prior (6th month of contraction).

- (CA) Bank of Canada (BOC) leaves interest rates unchanged at 2.75%; as expected.

- (US) USTR Greer: Pleased that negotiations with EU advancing quickly; Paris meeting with EU counterpart Sefcovic was very constructive.

- (MX) Mexico Pres Sheinbaum: US announcement to raise steel and aluminum tariffs is 'unfair measure'; Meeting with Mexico steel business groups today.

- (US) May ISM services index: 49.9 V 52.0E; New orders fall into contraction territory; Prices paid highest since Nov 2022.

- (CA) PM Carney: Confirms govt preparing reprisals against US if tariff discussions aren't successful.

- (US) Fed Beige Book: Few districts report outlook Gas deteriorated, while few others indicate outlook has improved; prices have increased at moderate pace since prior report.

- (US) DOE CRUDE: -4.3M V -1.5ME; GASOLINE: +5.2M V -0.5ME; DISTILLATE: +4.2M V +0.5ME.

- Pres Trump: Had a good conversation with Russia's Putin, but not a conversation that will lead to immediate Peace; We discussed the attack on Russia’s docked airplanes, by Ukraine, and also various other attacks that have been taking place by both sides; Also discussed Iran - Truth Social post.

Europe

- (IE) Ireland May PMI Services: 54.7 v 52.8 prior (50th month of expansion).

- (EU) NATO Sec Gen Rutte: US is completely committed to Article 5 Pact; We need more resources, forces and capabilities so that we are prepared to face any threat, and to implement our collective defense plans in full.

- (DE) Germany May New Car Registrations 239.3K, +1.2% y/y - KBA.

- (EU) Trade Commissioner Sefcovic: Reiterates had substantive and constructive discussions with USTR Greer; Discussions advancing in right direction at pace, talks to continue; We should do most to get deal before July 9th.

- (UK) PM Starmer: Working on bringing US tariff on UK steel from 25% to 0%.

- (PL) Poland Central Bank (NBP) leaves base rate unchanged at 5.25%; as expected.

- (CN) Reportedly China introduced national rare earth magnet tracking system - press.

- (UR) Ukraine Pres Zelenskiy: Russian proposals are ‘not doable’; Ready to meet Putin even without ceasefire.

- (CA) PM Carney: Trade discussions with US are ongoing; US steel and aluminum tariffs are illegal.

- Reportedly Saudis want more "super-size" OPEC+ production increases in effort to boost market share - press.

- (EU) Trade Commissioner Sefcovic: Reiterates had substantive and constructive discussions with USTR Greer; Discussions advancing in right direction at pace, talks to continue; We should do most to get deal before July 9th.

Levels as of 01:20 ET

- Nikkei 225 -0.4%, ASX 200 -0.1%, Hang Seng +0.6%; Shanghai Composite flat; Kospi +1.4%.

- Equity S&P500 Futures -0.1%; Nasdaq100 -0.1%; DAX flat; FTSE100 -0.1%.

- EUR 1.1408-1.1435; JPY 142.53-143.08; AUD 0.6486-0.6510; NZD 0.6025-0.6043.

- Gold -0.2% at $3,390/oz; Crude Oil -0.4% $62.63/bbl; Copper -0.3% at $4.8880/lb.