JP political uncertainty – Trade nerves rise ahead of Aug 1st, NZ CPI stays in-band

General trend

- Ahead of final results, Japan’s ruling LDP-Komeito coalition look set to keep only 47 seats, short of the 50 required to hold onto their majority. Will complicate economic policy, existing fiscal concerns and US trade talks, requiring negotiations with opposition parties. Ahead of final results, Center-left CDP party came second with 22 seats while right-wing start-up party Sanseito ("Japan First") went from 1 to 14 seats. [First time since 1955 the LDP has not held a majority in either house]. Market impact may be somewhat muted until the cash open on Tuesday as Japanese markets are closed today for a holiday. However, initial results may have already been priced in with the Nikkei equity FUTs steady, and while JPY/USD initially rebounded 85 pips in early trading Monday, USD pared back most of those losses during the Monday session. Moving forward, political uncertainty in Japan seems a very likely outcome.

- Little appeared to be gained out of Japan’s hoped-for trade negotiations with US Treas Sec Bessent at the Osaka Expo over the weekend. Trade Rep Akazawa said he did not discuss tariffs with Bessent, and that only “arrangements for ministerial level tariff discussions with the US” will take place next week. Meanwhile Bessent himself merely posted on X that ‘”A good deal is more important that a rushed one”, and that “a trade deal remains in the realm of possibility”.

- EU-US trade tensions grew after Pres Trump late Friday advocated for a minimum 15-20% tariff on EU imports, while also declining to lower the 25% sectoral tariffs. [The EU had been positioning for a 10% baseline]. US Commerce Sec Lutnick remained confident we will 'get a deal done with the EU', However Aug 1st remains a hard deadline for the recently threatened 30% tariffs if no-deal is reached.

- Then during Asia session the Euro initially fell -0.1% (recovering later) as Germany reportedly will "back EU retaliation” if it is needed due to the increased demands by the US side.

- Reminder that the EC’s Chief von der Leyen will meet China Pres Xi in Beijing on Thursday as part of the EU-China 50th anniversary of establishment of diplomatic relations. Not a lot of concrete trade progress is expected to come out of the meeting.

- South Korea Industry Minister warned that US tariff talks are in a 'serious situation' ahead of the Aug 1st deadline.

- Australia Treasurer Chalmers appeared to draw some hard lines in US trade negotiations, saying there was Zero chance of Australia's Pharmaceutical Benefits Scheme (PBS) being included in the talks. [PBS in Australia and Pharmac in New Zealand both subsidize medications for their populations, resulting in larger purchases of generic medicines instead of original brand-name pharma products, reducing US-Pharma sales Down Under].

- Asia stocks on a Japanese holiday saw the Hang Seng touch 25K for the first time since Feb 2022. Singapore's FTSE and STI Indices both hit fresh record highs. Kospi also now only ~100 points off an all-time high. Australia’s ASX fell from Friday's fresh record high to underperform -1.2% with Financials -2.5%.

- Amid a warning back in June from the Pentagon reviewing if the US should scrap the AUKUS defense pact, Australia’s Ambassador to US Kevin Rudd said he was working with the Pentagon on the review.

- Reports that Australia’s RBA will face further scrutiny on perceptions of being ‘too late to cut’ as Gov Bullock is due to deliver a speech on Thurs [Jul 24th].

- Amid the good cheer generated for Nvidia about the likelihood about receiving US govt permission for the revamped H20 chip to be sold into China again, press reports that supply constraints and production issues could limit availability.

- New Zealand’s Q2 inflation rose at a slightly lower level than expected (and for the fourth quarter was within the 1-3% band). Kiwi dollar edged lower -0.3% as NZ 3-yr yields -3bps and NZ 2 yr yield -4.5bps post-data.

- With JPY/USD having fallen to the 149 handle last week, CFTC Japanese Yen net long positions last week continued to pull back from their record ~179K contracts as at Apr 29th, now down to +103.6K contracts Net long as at July 15th.

- China new car registration scandal spreads as BYD, Chery and Zeeker (Geely unit) among the China EV brands to admit violations related to "zero-mileage used cars" being pre-registered and insured. BYD blaming their dealers for the violations. Geely -3.6% in HK.

- South Korea exports and imports both fell in the first 20 days of July, arresting the healthy figures the month prior. Chip exports kept increasing at a healthy clip, but exports fell to Korea’s top 2 trading partners, China and the US, blamed by the Customs Agency on reduced working days in July and US trade policy uncertainty.

- China PBOC kept its monthly Loan Prime Rates unchanged, as expected.

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

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

- Tue July 22nd NZ Jun Trade Balance, AU RBA Minutes, (Tue night US Fed Chair Powell speech).

- Wed July 23rd KR Jun Consumer Confidence, BOJ Uchida speech, US (Wed night US Jun Existing Home Sales).

- Thu July 24th KR July Business Confidence, KR Q2 GDP, Global Flash PMIs, (Thu eve ECB rate decision).

- Fri July 17th (Fri night US Jun Durable Goods).

Holidays in Asia this week

- Mon July 21st Japan.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens -0.5% at 8,717.

- New zealand Q2 CPI Q/Q: 0.5% V 0.6%E; Y/Y: 2.7% V 2.8%E; (Fourth quarter within the 1-3% band); CPI Tradeable Q/Q: 0.3% v 0.5%e; CPI Non-Tradeable Q/Q: 0.7% v 0.7%e.

- Reserve Bank of New Zealand (RBNZ) Q2 Sectoral Factor Model Inflation Index Y/Y: 2.8% v 2.9% prior (four-year low).

- Australia Ambassador to US Rudd: Working with Pentagon on review of AUKUS submarine project; Confident will work through issues that have been raised [weekend update].

- Australia Treasurer Chalmers: See US tariffs as act of economic self-harm; Zero chance of Australia's Pharmaceutical Benefits Scheme (PBS) as part of US trade negotiations [weekend update].

China/Hong Kong

- Hang Seng opens +0.7% at 24,991; Shanghai Composite opens +0.3% at 3,542.

- China PBOC monthly loan prime rate (LPR) setting: leaves rates unchanged (as expected).

- China Jan-Jun Inbound FDI (CNY) Y/Y: -15.2% v -13.2% prior.

- China Jun Electricity Consumption Y/Y: 867BKWh, +5.4%.

- China Commerce Ministry (MOFCOM): Reiterates vows necessary measures to safeguard co's rights; EU sanctions cause 'serious' harm to China-EU ties [comments on EU sanctions on Russia].

- China tax crackdown spurs shift to HK Stock Connect; Certain mainland China investors with holdings in HK and US stocks have received notices from local tax authorities demanding payment of a 20% tax on overseas investment income; the notices have been issued since the start of 2025 - China Securities Times.

- China Jun rare earth magnet exports +158% m/m following London trade truce with US - financial press, citing China trade data.

- China's Chengdu province said to ease home purchase rules "in a gradual manner" - financial press.

- BYD and Chery among latest China EV brands to "hold dealers accountable" for violations related "zero-mileage used cars" pre-registration and insurance scheme - press (update).

- Nvidia: Supply constraints and production issues could limit availability of revamped H20 chip in China - The Information [weekend update].

- China tech bond issuance >CNY760B since May - Chinese press.

- Reportedly Chinese EV brands Zeekr and Neta have inflated their vehicle sales using a "zero-mileage used cars" insurance scheme – press [weekend update].

- China said to plan to prevent overcapacity in steel production from getting worse [weekend update].

- House China Committee Chair Moolenaar (R-MI) disagrees with decision to allow restarting sales of H20 chips to China - letter to Commerce Sec Lutnick [weekend update].

- Follow up: China Commerce Ministry (MOFCOM): To further strengthen against smuggling of strategic minerals for reasons of national security and supply chain protection - US financial press [weekend update].

- China PBOC sets Yuan reference rate: 7.1522 v 7.1498 prior.

- China PBOC Open Market Operation (OMO): Injects CNY171B in 7-day reverse repos; Net drains CNY56B v injects CNY103B prior.

Japan

- Nikkei 225 closed for holiday.

- Japan said to plan to convene extraordinary Diet session on Aug 1st - Japanese press.

- Follow up: Ruling party LDP and coalition partner Komeito reportedly standing at 47 seats, short of the 50 seats required to hold majority in the Upper House - financial press.

- Exit polls show Japan’s ruling LDP-coalition likely to lose its majority in the Upper House; Would complicate and potentially paralyze economic policy, fiscal concerns and US trade talks, requiring negotiations with opposition parties – financial press.

- Follow up: Japan to start testing deep-sea mining extraction from Jan 2026 at biggest-ever depth of ~5.5km - science press [weekend update].

- US Treasury Sec Bessent: Regarding Japan, a good deal more important than rushed one; Trade deal remains in realm of possibility - X post [weekend update].

- Japan Trade Negotiator Akazawa: Making arrangements for ministerial level tariff discussions with the US next week; Did not discuss tariffs with Treasury Sec Bessent on Saturday [weekend update].

Korea

- Kospi opens flat at 3,191.

- South Korea July 1-20 Days Exports Y/Y: -2.2% v 8.3% prior; Imports Y/Y: -4.3% v 5.3% prior.

- South Korea Industry Min Kim Jung-kwan: US tariff talks are in a 'serious situation'; Pledges all-out effort to smoothly wrap up negotiations by Aug 1st - financial press.

- South Korea government commences cash payouts of up to KRW550K per citizen to households - Press.

- South Korea Finance, Foreign and Industry Ministers said to seek US visit - Korean press.

- South Korea said to consider raising stock transaction tax - Korean press.

Other Asia

- Singapore's FTSE and STI Indices also at fresh record highs.

- Malaysia PM Anwar: Plans to announce several new approaches this week on price monitoring; certain prices have risen despite 'tepid' inflation print.

- Taiwan Semi’s 2nm production capacity speculated to rise to 100K in 2026 v 40K pieces per month in 2025; 'strong' demand cited - Taiwan press.

North America

- Tesla CEO Musk on Robotaxi's: Need to validate that Austin improvements don't cause regressions elsewhere; Waiting for EU and China regulatory approval - press.

- Elon Musk: We’re going to make Baby Grok xAI, an app dedicated to kid-friendly content [weekend update].

- (US) Treasury Sec Bessent reportedly advised Pres Trump not to fire Fed Chair Powell, noting that the Fed is already indicating it will cut rates later this year – WSJ [weekend update].

- (US) Pres Trump: We've got trade deals coming out of our ears; We've got a couple to announce soon, maybe today; Stablecoin bill is massive validation for crypto - comments at GENIUS Act signing [weekend update].

- (BR) US Sec State Rubio: US will revoke visas from seven other justices of Brazilian Supreme Court, in addition to justice Moraes, as well as their immediate family members, following court orders against former Brazil Pres Bolsonaro [weekend up.

- (US) July preliminary Universityniversity of Michigan confidence: 61.8 V 61.5E; Inflation expectations fall back to pre-Apr 2nd levels [weekend update].

- (US) JUN HOUSING STARTS: 1.321M V 1.300ME (bounce from 5-year low); BUILDING PERMITS: 1.397M V 1.387ME [weekend update].

Europe

- (UK) Bank of England (BOE) said to have been 'urged' to hold back long-dated bonds from the market - financial press.

- (EU) Germany reported to "back EU retaliation if needed"; Follows increased demands from the US - WSJ.

- (UK) July Rightmove House Prices M/M: -1.2% v -0.3% prior; Y/Y: 0.1% v 0.8% prior.

- (EU) US Pres Trump said to advocate for 15-20% minimum tariff on EU imports; Declines to lower 25% sectoral sanctions on autos – FT [late Friday update].

- (RU) UK and EU lower Russian oil price cap from $60/bbl to $47.60/bbl (as expected) [weekend update].

- (US) Border Czar Homan: In discussions regarding exemptions for migrant farmworkers; Pres Trump won't approve any amnesty for immigrants - comments to media [weekend update].

Levels as of 01:20 ET

- Nikkei 225 closed, ASX 200 -1.2%, Hang Seng +0.2%; Shanghai Composite +0.5%; Kospi +0.7%.

- Equity S&P500 Futures +0.1%; Nasdaq100 +0.2%; DAX -0.4%; FTSE100 -0.1%.

- EUR 1.1614-1.1647; JPY 147.96-148.67; AUD 0.6498-0.6521; NZD 0.5939-5973.

- Gold +0.4% at $3,371/oz; BTC +0.3% at 118,280; Crude Oil +0.2% at $66.18/bbl; Copper flat at $5.6028/lb.