Markets quiet on US holiday – KR CPI below target

Asia market update: Markets quiet on US holiday; KR CPI below target; Focus on EU Aug CPI, US Aug ISM Manufacturing PMI; AU Q2 GDP tomorrow.

General trend

- Markets traded on light liquidity with the US Labor Day holiday on Monday, although Treas Sec Bessent was busy on the interview circuit, believing there is a very good chance Stephan Miran is seated on Fed before Sept FOMC meeting and that the Supreme Court will uphold Pres Trump's tariffs. Said Pres Trump may also declare a national housing emergency this fall to address rising prices and dwindling supply.

- HK/CN stocks took a breather from recent advances, with Shanghai Composite -1.1%, while the Kospi outperformed +1.1%.

- South Korea Aug CPI unexpectedly saw deflation for the month and y/y saw the slowest rise since Nov 2024). Headline CPI at 1.7% now below the South Korean inflation target of 2.0%. Bank of Korea said inflation would rebound to 2% target in September.

- Meanwhile South Korea agreed to “gradually” raise defense costs with the US, while Pres Lee reinforced calls for “bold steps” to boost GDP.

- Australia after yesterday’s somewhat middling GDP components (ahead of tomorrow’ sQ2 GDP release), saw today’s Q2 current account deficit not as bad as expected, with Net exports as a % of GDP were inline. Australian weekly consumer confidence moved back higher again.

- Better New Zealand econ data today with Q2 Terms of Trade Index over double the previous quarter.

- Dollar/Yen moved higher (back to levels mid-last week) upon what the market interpreted as a dovish BOJ Dep Gov Himino, saying in a prepared speech that uncertainty is still high and there could be a slowdown in inflation as food price increases dissipate. Japan 10-year yields proceeded to fall -2.5bps back below 1.60% after the strongest 10-year JGB auction in nearly 2 years.

- Japan trade negotiator Akazawa said there is No gap in understanding with the US on trade deal, however, the schedule of his next visit still not set (already delayed once last week).

- Amid the recent attention on rising China stock indices and the US-China AI war, some very insightful “inside China” information on actual China chip capabilities, courtesy of Goldman Sachs. A new AI chip company Metax filed its Shanghai IPO inquiry answers last week, laying out clearly the challenges faced by Chinese chip-makers. Essentially the filing shows Metax being 1-2 generations of chip behind Nvida, currently somewhere between Nvidia’s A100 (2020) and H100 (2022). In sum, whereas NVIDIA can improve performance, power efficiency and cost simultaneously, Chinese companies must choose which to limit.

- Another weaker fix by the China PBOC saw the Offshore Yuan (CNH) fall again, to 7.14, for now ending last week’s surge when the Yuan hit the 7.11 handle for first time since Nov 2024.

- Gold hit a new record high of $3,508/oz as Silver continued gains to nearly $41.

- Reminder TTN China Note: Four scenarios to watch out for at the Sept 3rd China Victory Parade in terms of China leadership: 1) Xi Jinping inspects the troops standing alone, as at previous parades (means Xi is either still in control or is being allowed to appear as being still in control by other factions for purposes of stability); 2) General Zhang inspects the troops (means there has been a quiet military coup), 3) Another general inspects the troops (means Xi, Zhang and various factions still cannot agree nor can one dominate), 4) A group of generals and Xi inspect the troops together (means Xi, Zhang and various factions still cannot agree nor can one dominate).

- US equity FUTs -0.1% during Asian trading.

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

- Tue Sept 2nd (Tue eve EU Aug CPI, Tue night US Aug ISM Manufacturing PMI).

- Wed Sept 3rd AU Q2 GDP, CN Aug Caixin Services PMI, (Wed night US July JOLTS, Fed Beige Book).

- Thu Sept 4th AU July Trade Balance, (Thu night US Aug ISM Services PMI).

- Fri Sept 5th JP July House Spending, (Fri eve UK July Retail Sales, US Aug Nonfarm Payrolls).

Holidays in Asia this week

- Tue Sept 2nd Vietnam.

- Wed Sept 3rd Vietnam.

- Fri Sept 5th Indonesia, Malaysia.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens -0.1% at 8,915.

- Australia Q2 Current Account Balance (A$): -13.7B v -16.0Be; Net Exports of GDP: 0.1% v 0.1%e.

- Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 88.0 v 86.0 prior.

- New Zealand Q2 Terms of Trade Index Q/Q: 4.1% v 1.9% prior (v 1.9%e).

- Amazon launches AWS Asia Pacific infrastructure region in New Zealand with NZ$7.5B investment.

China/Hong Kong

- Hang Seng opens -0.1% at 25,587; Shanghai Composite opens flat at 3,877.

- China stocks margin trading balance rises to record $320B.

- China Pres Xi: Proposes global governance initiative; We should seek integration, not decoupling; China will establish platforms in energy, green industry, digital economy; Will build AI cooperation center - SCO summit.

- China Foreign Min Wang Yi: Global governance monopoly by a few nations must not last - comments from SCO Summit.

- Hong Kong July Retail Sales Value Y/Y: 1.8% v 2.9%e; Retail Sales Volume Y/Y: 1.0% v 2.3%e.

- BABA: TTN Research Alert: Overnight, Alibaba’s 19% surge in Hong Kong crystallized a larger thesis: China’s AI catch-up will be decided less by a single heroic chip and more by the rapid industrialization of a software-first, inference-first stack.

- China PBOC sets Yuan reference rate: 7.1089 v 7.1072 prior.

- China PBOC Open Market Operation (OMO): Injects CNY256B in 7-day reverse repos; Net drains CNY150B v drains CNY106B prior.

Japan

- Nikkei 225 opens +0.3% at 42,300.

- Japan Aug Monetary Base Y/Y: -4.1% v -3.9% prior.

- Japan sells ¥2.6T VS. ¥2.6T indicated in 10-year jgb bonds; AVG yield: 1.6120% V 1.4620% prior; bid-to-cover: 3.92X V 3.06X prior.

- Japan BOJ’s Dep Gov Himino: Japan's real interest rate still very low; Appropriate to raise rates if economic outlook is met (inline) - speech in Hokkaido.

- Japan trade negotiator Akazawa: No gap in understanding with the US on trade deal; Schedule of his next visit not yet set - comments from Tokyo.

- Japan Fin Min Kato: Corporate profits being hit by US tariffs, especially for autos - financial press.

- Japan ruling party LDP panel has compiled report on election loss (Upper House loss back in July) - Japanese press.

- Japan PM Ishiba said to ask ministers to compile economic measures to address inflation and tariffs - Japan press.

Korea

- Kospi opens +0.4% at 3,155.

- South Korea Aug CPI M/M: -0.1% V +0.2%E; Y/Y: 1.7% V 1.9%E (slowest y/y rise since Nov 2024).

- Bank of Korea (BOK): Inflation to rebound to ~2% in Sept (comments post Aug CPI figures below target of 2.0%).

- South Korea agrees to 'gradually ' raise defense costs with the US - Korean press.

- South Korea Pres Lee: Reinforces calls for 'bold steps' to boost potential growth rate - cabinet meeting comments.

- South Korea Spy Agency: North Korea's Leader Kim Jong Un expected to seek to restore China relations on his visit to Beijing - Korean press, citing South Korea lawmakers

Other Asia

- Malaysia Aug PMI Manufacturing: 49.9 v 49.7 prior (15th month of contraction but highest since Jun 2024).

- Taiwan Semi: Reportedly plans to increase foundry prices for its advanced semiconductor processes by ~5-10% in 2026 - DigiTimes.

- (US) Pres. Trump: India has offered to cut tariffs to zero; What few people understand is that we do very little business with India, but they do a tremendous amount of business with us.

- Thailand's People's party official: Have not yet decided on backing any party for next coalition govt; Will meet again on Sept 2nd on Thai PM strategy.

North America

- (BR) US govt reportedly preparing new trade measures against Brazil - CNN Brasil.

- (BR) Brazil VP Alckmin: Drawback regulation for Brazilian exporters to be issued tomorrow; Companies will have one year to seek new markets or export to the US.

- (US) Treasury Sec Bessent: Very good chance Stephan Miran is seated on Fed before Sept FOMC meeting; Confident Supreme Court will uphold Pres Trump's tariffs - press interview.

- (US) Treasury Sec Bessent: Pres Trump may declare a national housing emergency this fall to address rising prices and dwindling supply (update).

- (US) Pres. Trump: It is very important that the Drug Companies justify the success of their various Covid Drugs. Many people think they are a miracle that saved Millions of lives. Others disagree! With CDC being ripped apart over this question, I want the answer, and I want it NOW.

- Mexico Aug IMEF Manufacturing Index: 45.6 v 45.3 prior.

- *(US) Truflation proxy of US aggregated inflation index drops to 2.0% V 2.3% D/D and 1.4% before 'Liberation Day'.

Europe

- (RU) Russia Pres Putin: Russia-China relations at an unprecedentedly high level - comments while meeting China's Pres Xi in Beijing.

- *(EU) Euro zone July unemployment rate: 6.2% V 6.2%E.

- *(UK) July net consumer credit: £1.6B V £1.3BE; net lending: £4.5B V £3.5BE.

- *(UK) Aug final Manufacturing PMI: 47.0 V 47.3E (confirms 11th month of contraction).

- *(EU) Euro zone Aug final Manufacturing PMI: 50.7 V 50.5E (confirms 1st expansion in 38 months and highest since June 2022).

- *(DE) Germany Aug final Manufacturing PMI: 49.8 V 49.9E (confirms 38th month of contraction).

- *(IT) Italy Aug manufacturing PMI: 50.4 V 49.8E (1st expansion in 17 months).

Levels as of 01:20 ET

- Nikkei 225 -0.1%, ASX 200 -0.3%, Hang Seng -0.7%; Shanghai Composite -1.1%; Kospi +1.1%.

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

- EUR 1.1687-1.1719; JPY 147.05-147.86; AUD 0.6535-0.6559; NZD 0.5881-5809.

- Gold +0.5% at $3,563/oz; BTC +2.1% at $110,360; Crude Oil +0.5% at $64.94/bbl; Copper +0.3% at $4.5870/lb.