AUSSIE BONDS: AUCTION PREVIEW: ACGB Jun-35 Supply Due

TYM5 is trading 110-25, up 0-01 from its close. 

• The US 2-year yield opens around 3.90%, unchanged from its close.
• The US 10-year yield opens around 4.414%, up 0.01 from its close
• MNI BRIEF: Fed Balance Sheet Could Be Trillions Smaller-Warsh: The Federal Reserve should aim for a much smaller balance sheet in order to have a smaller footprint in financial markets and reduce the risk of inflationary bursts like the one experienced after Covid, former Fed Board Governor Kevin Warsh said Friday. The Fed's balance sheet "is trillions larger than it needs to be. We can't make this change overnight," said Warsh, who is seen as a leading candidate to replace Jerome Powell as Fed chair next year.
• US DATA: Far Smaller Trade Deficit As Tariff Front-Running Corrects Abruptly: Advance April trade data saw a far smaller than expected goods trade deficit with clear signs of an abrupt cooling in imports after some particularly elevated readings ahead of reciprocal tariffs starting in April. We suspect gold and pharmaceutical products were particularly to blame but will have a better idea next week. 
• The 10-year has come back down to test its support around 4.35/40%, likely aided by month-end rebalancing.  Yields need to hold above this area to continue to build for a move higher. 
• Data/Events: S&P Global US Man PMI, ISM Man.

The ESM5 Overnight range was 5853.25 - 5932.75, Asia is currently trading around 5900. US stocks traded heavily on Friday night likely aided by month-end rebalancing as funds sold Equities and bought bonds. A good bounce into the close saw most of those losses clawed back.

• (Bloomberg) - “US stocks hit session lows in early afternoon Friday in New York after news the Trump administration plans to broaden restrictions on China’s tech sector. They plan to impose new regulations and licensing requirements that prevent workarounds to the curbs on transactions with companies majority-owned by already-sanctioned firms as soon as June.”
• (Bloomberg) - “A May for the history books could face a bumpy path in June, in what has historically been the third-worst month this century for the S&P 500. The US equities benchmark has soared 6.2% this month through Thursday, heading for its best May since 1990 after a reprieve from President Donald Trump’s tariff offensive has left the S&P 500 within 4% of its February record.”
• Stocks could not get back above the 6000 area last week, the move looks overdone but momentum type funds and share buybacks have kept the market well supported. Share buybacks are set to enter their blackout period in the middle of June, will this be the catalyst to see some sort of a retracement in stocks ?
• The price action continues to point to a market that was caught begrudgingly underweight, and as a result the dips continue to be supported.

• In the short-term stocks are beginning to look overbought and a retracement would be healthy. The first buy-zone is back towards the 5600/5700 area where demand could be expected.

  Fig 1: Record Gains For May

  

  Source: MNI - Market News/Bloomberg

Oil prices were lower on Friday due to reports that OPEC could increase output by even more than it had previously. Benchmarks finished May higher. They have started the week stronger on relief that the OPEC output increase for July is in line with previous moves. Also there is a push by some US lawmakers to penalise imports from countries buying Russian oil and uranium, which would target China and India.

• WTI fell 0.25% to $60.79/bbl to be up 5.5% in May. It rose to a high of $61.72 before declining to $59.74, but remaining above the bear trigger at $54.33. The break below $60 was only brief though. It has started today up 2.0% to around $62.00/bbl. Initial resistance is at $62.54, 50-day EMA.
• Brent underperformed falling 1.2% to $62.61/bbl to finish the month 3.2% higher. The benchmark reached $64.09 before shifting down to $62.09. It has started the week 1.6% higher at $63.81. It continues to struggle to reach initial resistance at $65.41, 50-day EMA. The medium-term trend remains bearish with the bear trigger at $57.78.
• OPEC agreed on Saturday to increase output 411kbd from July, the third increase of this size which is believed to be a message to overproducers. Apparently Russia, Oman and Algeria wanted a pause in output normalisation, according to Bloomberg. The next meeting is on July 6.
• Ukraine attacked Russian airbases with drones destroying 40 bomber planes, according to the BBC. It appears in response to larger Russian attacks on Ukraine including Kyiv. Talks are due to take place this week.
• The International Atomic Energy Agency reported that Iran has enriched a record amount of uranium at just below weapons grade. Negotiations with the US are ongoing.