Focus on DAX, autos

Asia market update: JP assets driven by major macro news (trade and politics - also terrible JGB auction); Focus on DAX, autos.

General trend

- US Pres Trump announced his Admin’s biggest trade deal so far, with Japan to pay a lower-than-expected 15% reciprocal tariff rate (down from prior rate of 25%). Japan will also invest $550B in the US, at Trump’s direction, but with Japan to receive 90% of the profits. Trump added that Japan will open up to US cars, trucks, rice and certain agricultural products. Japan and US also agreed to maintain the 50% steel tariffs and other sectoral tariffs. Japan will also accept US autos without additional safety tests.

- Nikkei shot up shortly after the open and Japanese auto shares took off, with Toyota Shares +16% for its largest daily rise since 1987 and others such as Mazda halted limit up with all Japan auto makers up double-digits.

- Nikkei 225 continued to rise +3.3% at lunch to its highest since Jul 17th 2024. Later +3.8%.

- A trade group for Detroit's 'Big Three' US automakers criticized the deal, however, saying it cuts tariffs on imports from Japan but not on imports of Japanese vehicles built in North America.

- Topix banking +2%, JGB bonds at the front-end and belly up sharply; 2-yrs +5bps to 0.80%, highest since early April, 5-yrs and 10-yrs +7bps. Later joined by long-end 40-yrs +7.6bps after Japan’s recently troublesome 40-year JGB auction was successful, but saw the weakest demand ratio since Aug 2011, despite the BOJ cutting the auction size down to ¥400B from ¥500B prior (and ¥700B two auctions ago, a size which was maintained for nearly three years). [Notable that Japan Post Insurance thinks that Japan has now hit ‘peak yields’].

- Japan also rolled over on importing more US rice, which was completely excluded in the last Japan-US trade deal of 2019.

- Japan's deal puts pressure on other major trading partners such as South Korea, EU and others to try and attain a similar tariff rate.

- Trump also said Europe deal “coming in tomorrow” (assumed to be reference to a rrade deal).

- US Pres Trump announced after meeting Pres Marcos that the Philippines has agreed to pay a 19% tariff and be an open market with zero tariffs for US goods going into the Philippines. (The same deal as struck with Indonesia last week, although 2% more than the 17% level imposed on the Philippines back on Apr 2nd).

- US Treas Sec Bessent said he will meet Chinese counterparts in Stockholm on Mon and Tues, July 28-29th, with the China deal set to expire on Aug 12th.

- Then, news broke from multiple Japanese media sources of Japan PM Ishiba reportedly to resign by the end of August. USD/JPY regained some its lost ground this week, but the market reaction was muted (stocks kept rising) compared to the trade deal announcement earlier in the session.

- BOJ Dep Gov Uchida delivered a somewhat stale speech, likely written prior to today’s US-Japan trade deal agreement. Uchida's press comments after the deal was announced was more interesting, saying overall the US-JP trade deal was good news for Japan.

- On a busy macro-day all of Asia was green, with the Nikkei outperforming +3.8%, and the Shanghai Composite highest since Oct 2024, while the Hang Seng may close at 4-year high, well over 25.3K.

- Taiwan’s June export orders again outperformed high expectations, with already sky-high increases in export orders to the US also joined by Japan for June, with both countries’ Taiwanese export orders +35-38% y/y.

- DAX FUTs +1.0% (SAP reported; Germany autos in focus post JP rally).

- RBA Bullock speech tomorrow.

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

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

- Wed July 23rd, (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 8,719.

- Australia Jun Westpac Leading Index M/M: -0.03% v +0.05% prior.

- AOFM [Australia debt agency]: Prices syndication of A$16.0B in 4.25% Oct 2036 Treasury Bonds; Real yield to maturity: 4.36%.

China/Hong Kong

- Hang Seng opens +0.9% at 25,348; Shanghai Composite opens +0.2% at 3,588.

- HKMA lends HK$20M to banks through the discount window.

- China Forex Regulator (SAFE): Supply and demand in FX market is basically stable; Don’t see ‘irrational’ trading activities now [overnight update].

- China Foreign Ministry Official Guo: Reiterates had no information on US Commerce Dept employee barred from leaving China. [overnight update].

- China MOF sells 3-month, 6-month bills.

- China Jun Client FX Net Settlement (CNY-denominated): 184.0B v 124.9B prior [overnight update].

- China PBOC sets Yuan reference rate: 7.1414 v 7.1460 prior (strongest since Nov 6, 2024).

- China PBOC Open Market Operation (OMO): Injects CNY151B in 7-day reverse repos; Net drains CNY370B v drains CNY128B prior.

Japan

- Nikkei 225 opens +1.1% at 40,270.

- Japan PM Ishiba to 'resign' by the end of Aug - Mainichi.

- Japan said to increase import ratio of US rice; To keep overall 'minimum access' framework for rice imports – NHK.

- (US) Trump Administration Official: Confirms there are no changes to other sectoral tariffs in the deal with Japan; US tariffs on Japan autos and auto parts to total 15%.

- Japan and US agreed to maintain 50% steel tariff - Japanese media.

- Japan Trade Negotiator: Akazawa: Struck deal with the US after 70-minute meeting with US President Trump.

- Japan PM Ishiba: Will talk to Trump 'as needed'; Received initial report from Trade Rep Akazawa; Confirms 15% tariff rate on cars - financial press.

- Follow up: Japan Trade Negotiator Akazawa: *Mission Complete" (in reference to trade deal with US) - post on X.

- US Pres Trump: Japan will pay 15% reciprocal tariffs, and also invest $550B in the US.

- BOJ Dep Gov Uchida: Affirms to raise rates if economic outlook is realized; Uncertainties very high – speech.

- Press poll cites 83% of economists expect BOJ to hold rates at 0.50% thruogh end-Sept (next two meetings) - financial press poll.

- US Treas Sec Bessent: Japan talks are going ‘very well’; Not surprised if we can iron out something quickly; Japan election may be impetus to getting deal done.

- Japan sells ¥400B VS. ¥400B indicated in 40-year JGB bonds; Yield at lowest acceptance price: 3.3750% V 3.1350% prior; bid-to-cover: 2.13X V 2.21X prior (below one-year avg of 2.5x), weakest demand since 2011.

- Japan Post Insurance: Says super-long term yields near peak - US financial press.

- Japan Business Lobby Keidanren Chief Masakazu Tokura: Impact of US tariffs on economy will not be small and would need appropriate economic measures.

- Japan's Trade Negotiator Akazawa and Treasury Sec Bessent held talks for about 30 minutes.

- BoJ said to likely leave rates on hold next week as it sees little impact from election on rate stance; BoJ to watch impact of trade talks before any rate hike – press [overnight update].

Korea

- Kospi opens +0.6% at 3,189.

- South Korea July Consumer Confidence: 110.8 v 108.7 prior (update).

- South Korea Industry Min Kim Jung-kwan: Seoul is 'having a close look' at the US-Japan deal - press.

Other Asia

- Philippine Pres Marcos: Confirms to open auto market and impose zero tariffs on US car imports - financial prses.

- TAIWAN JUN EXPORT ORDERS Y/Y: 24.6% V 23.2%E; Ministry sees July orders +7.9-11.9% y/y.

- (PH) US Pres Trump: Philippines agrees to pay 19% tariff; The Philippines is going OPEN MARKET with the United States, and ZERO Tariffs; In addition, we will work together Militarily.

- Malaysia MOF: Consumer Credit Bill (passed July 21st) is expected to have "major impact" on the country's financial landscape - statement.

North America

- Trade Group for Detroit's 'Big Three' US automakers say US-Japan deal is overall a 'bad deal' for the US and our companies - statement.

- Morgan Stanley: FINRA (US regulator) said to have sent at least 6 data requests on adequate AML for clients; Adds to federal investigations already faced by Co - WSJ.

- (US) Treasury Sec Bessent: About to announce a rash of trade deals within days; Aug 1st is a 'pretty hard' deadline for all countries; Could annualize tariff revenue at $300B and $2.8T over decade - Fox Business.

- (US) EPA drafts rule to overturn 2009 Endangerment Finding, which sets limits on greenhouse gas emissions for vehicles and power plants - WAPO.

- (US) Trump administration said to widen search for Golden Dome partners - press.

- (US) Fed's Bowman (voter, hawk): Time to look at banking regulations broadly - CNBC.

- (US) Fed Chair Powell: Need large banks to be free to compete with one another.

- (US) July Philadelphia Fed Non-Manufacturing Activity: -10.3 v -25.0 prior.

- (US) July Richmond Fed Manufacturing index: -20 V -2E; Volume of new orders: -25 v -12 prior.

- (US) Pres Trump: Fed Chair Powell will be out soon anyways at end of his term; Probably has rates too high for political reasons - comments at White House.

Europe

- (EU) US Pres Trump: Europe coming in tomorrow (unclear if reference to trade deal); Reaffirms we are going to get drug prices down - White House event.

- (HU) Hungary central bank (MNB) leaves base rate unchanged at 6.50%; as expected.

- (IE) Ireland Finance Ministry: Govt will increase 2026 spending by 6.4% from 8.4% in 2024.

- (UK) Chancellor (Fin Min) Reeves: Reiterates commitment to fiscal rules; Global factors are pushing up the cost of borrowing - Parliamentary Questions.

- (HU) Hungary Central Bank (MNB) Gov Varga: Economy still subdued in Q2; Price curbs had substantial impact on inflation - post rate-decision press conference.

- Nokia prelim Q2 Adj Op Net €300M v €407Me, Rev €4.55B v €4.8Be; Cuts FY25 opr profit €1.6-2.1B (prior: €1.9-2.4B) currency headwinds, a weaker USD, and ongoing tariffs.

Levels as of 01:20 ET

- Nikkei 225 +3.8%, ASX 200 +0.8%, Hang Seng +1.5%; Shanghai Composite +0.7%; Kospi +0.4%.

- Equity S&P500 Futures -0.1%; Nasdaq100 -0.1%; DAX +1.1%; FTSE100 +0.3%.

- EUR 1.1731-1.1757; JPY 146.20-147.21; AUD 0.6545-0.6569; NZD 0.5988-6019.

- Gold -0.3% at $3,435/oz; BTC +1.3% at 118,800; Crude Oil +0.5% at $65.64/bbl; Copper +0.5% at $5.7830/lb.