AUSSIE BONDS: ACGB Nov-31 Auction Results

The ESM5 Overnight range was 6030.25 - 6081.25, Asia is currently trading around 6037. With the odds of the US becoming involved in the war against Iran increasing everyday, the upward momentum of US equities seem to be stalling . ESU5 +0.05%, NQU5 +0.09%

• Lance Roberts on X: “WIth the end of the quarter approaching, pension fund rebalancing could be substantial given the rally from the beginning of the quarter.” See Graph below.
• Andreas Steno Larson on X: “Everyone thinks US involvement in Middle East conflicts is a negative. But look at the immediate market reactions to Desert Storm and the 2003 Iraq invasion—parabolic. Sometimes the “deal sealed” by the US is exactly what markets crave. Challenge the variant perception.”
• Andy Constan on X: “For those of you not born in 1990 the last time the U.S. was drawn into a war perhaps you should know that it was during the first post Volcker recession and equites had fallen 20% from ATH's.  Very different.”
• (Bloomberg) - “The S&P 500 is likely to reset after weeks of trading in a narrow range amid depressed volatility, once large option expiries in coming weeks pass. The S&P 500 is pinned between a strong option support at 5,900 and a vast field of dealer short calls at and above 6,000. Once the large expirations clear in the next couple of weeks and removes a factor underpinning the index, any decisive macro shock -- or lack thereof -- could propel volatility sharply higher or unleash a fresh upside squeeze.”
• The Shallow dips in US Equity markets continue to point to a market that has been caught underweight and is using any dips to get back in.  
• Share buybacks are set to enter their blackout period this week, will the absence of this large underlying bid allow for some sort of a retracement. This together with what looks to be some large month-end rebalancing should provide some decent headwinds to US Equities in the short-term.

• The S&P needs to break back below the 6000 area to initiate some sort of a correction, first support seen back towards 5600/5700.

  Fig 1: US Pension Fund Month-End Rebalancing

  

  Source:@LanceRoberts via X

European natural gas rose 3.4% to EUR 39.21 after a high of EUR 39.74 driven by growing concerns of an escalation in the Iran-Israel conflict resulting in a disruption to LNG shipments. Prices are now up 14.6% in June. 

• Energy markets reacted to prospects of the US assisting Israel in its attacks on Iran after President Trump left the G7 early. He has demanded that Iran surrender but said that they won’t assassinate the Ayatollah “for now” but his patience with Iran is “wearing thin”.
• An escalation of the conflict especially if the US gets involved could prompt Iran to disrupt tankers through the Strait of Hormuz which carries 20% of global LNG exports. This scenario would drive gas prices sharply higher and add to Europe’s challenge of refilling storage ahead of winter, which is making the market very sensitive to disruption risks.
• Qatar, the world’s third largest LNG exporter in 2024, has asked tankers to wait outside the Strait until they can be loaded, according to Bloomberg. Also, some companies are not taking new bookings and the conflict has resulted in the jamming of navigational equipment, which resulted in two tankers colliding and catching fire off the coast of the UAE.
• The EU presented plans to end pipeline and LNG gas imports from Russia, which account for around 13% of total imports. It will be gradual but more reliant members are reluctant as they fear higher prices, reported by Bloomberg.
• US gas rose 3.2% to $3.87 to be up 12.2% in June as cooling demand is expected to rise towards month end. It is up another 1.1% to $3.89 today as Middle East tensions could drive demand for US LNG higher.
• PM Carney said that Canada could become a “LNG superpower”.

Japan April core machine orders fell sharply, but in line with market projections. We were down -9.1%m/m (-9.5% forecast and following a 13.0% gain in March). In y/y terms, we were slightly better than forecasts at +6.6% (+4.2% was projected, while 8.4% was the March outcome). 

• The chart below plots core machine orders y/y (the white line on the chart) against a Japan Capex (ex software), which is also in y/y terms. It's still painting a fairly resilient backdrop in the earlier stages of Q2.
• Still, this comes ahead of trade headlines, with earlier data showing faltering export growth. The second chart below plots the machine orders against export growth (y/y), which is the orange line on the chart. 

Fig 1: Japan Core Machine Orders & Capex (Y/Y) 

Source: Bloomberg Finance L.P./MNI 

Fig 2: Japan Core Machine Orders & Exports (Y/Y) 

Source: Bloomberg Finance L.P./MNI