APAC Market Wrap - 1 Jul
China: Markets fluctuated throughout the day with mixed performance among major indices. At close, the Shanghai Composite rose 0.39%, the Shenzhen Component gained 0.11%, while the ChiNext Index fell 0.24%.
Total trading volume across Shanghai and Shenzhen markets was 1.47 trillion yuan, down 20.8 billion yuan from the previous session. Market hotspots were scattered, with roughly equal numbers of stocks rising and falling.
Sector-wise, innovative drugs, China Shipbuilding, lithography machines, and banks led gains, while diversified finance, cross-border payments, high-speed copper cables, and AI agents saw the largest declines.
Japan: The Nikkei Average fell sharply, retreating after a six-day rebound, closing at 39,986.33, down 501.06 points. After rising over 2,000 points in the prior five sessions, signs of overheating emerged, compounded by uncertainties in US-Japan trade talks, triggering profit-taking sales.
Nine sectors, including electricity & gas, other financials, nonferrous metals, and rubber products, rose, while 24 sectors, such as other products, services, pharmaceuticals, and precision instruments, declined.
South Korea: The KOSPI index rose 0.58% to 3,089.65. Sectors like oil & gas, steel, department stores, and gas utilities led gains, while electrical utilities, machinery, and healthcare technology saw significant declines.
Singapore: The Straits Times Index rose 0.68%, closing at 3,991.19 points. Sectors such as industrial products, pharmaceutical manufacturers, and software led the gains, while packaging & containers, semiconductors, and other energy sectors saw significant declines.
Key Events
US-Japan Trade Talks Stalled; Trump Criticizes Japan’s Rice Shortage Stance
US President Trump on Monday pressured Japan over trade talks, posting on Truth Social that Japan, facing a severe rice shortage, refuses to import US rice.
Trump complained that some countries are “spoiled,” expressing respect for Japan but criticizing its reluctance to import American rice despite the shortage. He suggested a simple letter could resolve the issue and emphasized the US’s desire to remain trade partners with Japan for years to come.
Thai PM Paetongtarn Suspended
On July 1, Thailand’s Constitutional Court accepted an impeachment petition against Prime Minister Paetongtarn and suspended her from office.
On June 20, the Senate Speaker submitted the petition, alleging that Paetongtarn’s phone call with Cambodian Senate President Hun Sen violated the constitution and ethical standards.
Trump Responds to Musk’s Criticism of “Big & Beautiful” Bill
Early today, President Trump posted on Truth Social, addressing Elon Musk’s criticism of his “Big & Beautiful” bill. Trump noted Musk supported his presidential campaign despite knowing his opposition to an “electric vehicle mandate.”
He called the mandate absurd, a key part of his campaign, and stated EVs are fine but shouldn’t be forced on everyone.
Trump claimed Musk has received more subsidies than anyone in history, suggesting without them, Musk’s businesses might collapse, forcing him back to South Africa. He proposed the Department of Government Efficiency investigate to save significant funds.
Institutional Views
Goldman Sachs: Tariff Costs Threaten US Corporate Profit Margins
Goldman Sachs strategists warn that US corporate profit margins face significant pressure in the upcoming earnings season due to Trump’s trade war tariffs. Q2 earnings will reflect tariffs’ direct impact, with costs up ~10% since early 2025.
While most costs are expected to pass to consumers, companies absorbing a higher-than-expected share could see glab their margins. Early US corporate results are mixed.
Morgan Stanley: Fed Unlikely to Cut Rates Soon
Morgan Stanley analysts say Fed rate cuts are unlikely in the next two meetings. Market expectations for a July cut rose from 8% to 20%, and September’s odds increased from 60% to 90%.
However, most Fed officials align with Powell’s cautious stance, and upcoming jobs data is expected to show steady but slower growth, with no urgent need for rate cuts.
ING: Tankan Data Supports BoJ Rate Hike Cycle
ING notes that Japan’s Q2 Tankan survey shows sustained optimism among large and small businesses despite trade war uncertainties. Manufacturers remain positive, with the manufacturing PMI expanding for the first time in 12 months.
The BoJ may raise rates this year, likely in October (25 bps), or earlier in September if a favorable US-Japan trade deal is reached sooner.
Julius Baer: US Stocks Attractive, but Europe, China, India Offer Better Value
Julius Baer’s Mark Matthews says US stocks offer unique opportunities, but selective investments in Europe, China, and India provide better value and risk-adjusted returns. US tech, defensive, and high-dividend stocks remain attractive.
Europe’s fiscal easing supports profit growth, China’s valuations are compelling, and India’s transforming economy, demographics, and improving business environment make it a strong diversification option.