• Geopolitical tensions mount amid further missile testing from North Korea. North Korea aims to create an ICBM capable of hitting the US this year
• Asian equities pared initial Korea-inspired losses. JPY strengthened on early safe-haven flows, pushing USD/JPY briefly below 113.00
• Looking ahead, highlights include Eurozone and UK service PMIs and FOMC minutes

ASIA

Asia equity markets were mostly higher as the region recovered from the opening losses triggered by heightened tensions in the Korean Peninsula after the recent North Korean missile test. ASX 200 (-0.3%) and Nikkei 225 (Unch) were pressured from the open amid increased provocation by North Korea, although stocks in Japan returned flat with JPY price action as the main driver. China was initially subdued after Caixin Services PMI printed a 13-month low and as participants in Hong Kong were despondent from yesterday’s tech-led selling, in which Tencent dropped over 4% after a state backed paper branded its game as poison and called for tighter regulation. However, stocks in the region were also resilient as the Shanghai Comp. (+0.2%) and Hang Seng (+0.3%) gradually rebounded into positive territory. Finally, 10yr JGBs were subdued as sentiment gradually improved with 10yr JGB futures breaking below last week’s lows to test the 150.00 level to the downside.

Chinese Caixin Services PMI (Jun) 51.6 vs. Exp. 52.9 (Prev. 52.8); 13-month low. (Newswires)

Chinese Caixin Composite PMI (Jun) 51.1 (Prev. 51.5)

PBoC refrained from conducting open market operations today for the 9th consecutive day. (Newswires)

PBoC set CNY mid-point at 6.7922 (Prev. 6.7889)

EUROPE/UK

ECB’s Nowotny said ECB should normalize as soon as economy allows and that he expects a long period of low rates. (Newswires)

BoE’s Saunders says that UK households should prepare for rates to go higher at some point, adding that there is no sense in suggesting that policy should remain on hold because Brexit negotiations are ongoing. (Guardian)

UK BRC Shop Price Index (Jun) Y/Y -0.3 (Prev. -0.4%). (Newswires)

FX

JPY strengthened on early safe-haven flows amid increased geopolitical tensions with reports of North Korea aiming to develop an ICBM capable of hitting the US this year, while US and South Korea also conducted missile drills as a show of force in response to the North’s recent missile launch. This pushed USD/JPY briefly below the 113.00 handle and in turn weakened the USD against its major counterparts, with EUR, GBP and AUD all edging mild gains against the greenback. However, there was a moderation of the moves with FX markets gradually paring some of the gains tspanoughout the session.

COMMODITIES

WTI slid away from near 1-month highs and briefly slipped below the USD 47/bbl level. Gold (+0.3%) prices gained amid heightened geopolitical tensions due to increased provocation by North Korea which spurred safe-haven flows into the precious metal, while copper was choppy alongside sentiment in the region.

GEOPOLITICAL

North Korea stated that the ICBM launch on Tuesday successfully tested stage separation, warhead re-entry, late-stage control and that the ICBM can carry a large nuclear warhead with commentators now suggesting that North Korea have the possibility of being able to strike the US (although not necessarily with nuclear force) . There were also reports that North Korea aims to create an ICBM capable of hitting the US this year, while its leader Kim stated he will send 'gift package' to the US frequently. (Twitter/Newswires) South Korea and US held joint ballistic missile drills, in a show of force against North Korea. (Newswires)

US

US Markets were shut for Independence Day.