AUSSIE BONDS: AUCTION PREVIEW: ACGB Nov-29 Supply Due

Natural gas peaked on Friday and has trended lower this week to be up only around 2% in June. European prices fell 2.3% to EUR 34.78 on Tuesday off the intraday low of EUR 34.44 helped by continued weak demand from Asia due to a mild summer and softer industrial demand driven by increased global trade uncertainty. This development is helping Europe to source cargoes to inject into storage ahead of next winter. However, warmer weather in Asia and Europe may boost global demand again.

• BloombergNEF showed European LNG imports rose to a 10-week high.
• Markets have worried that increased trade protectionism would reduce global energy demand. US-China trade talks have taken place this week and the Geneva Consensus was agreed to but it is now up to both presidents to agree to its implementation which could also allow further talks to take place. The focus had been on easing export controls.
• China has been shifting away from LNG imports, especially from the US, by increasing pipeline flows from Russia and its own output. 
• The EU is looking to extend sanctions on Russia including a ban on transactions with its Nord Stream pipelines as its war in Ukraine continues. There had been hope that a ceasefire may have enabled sanctions to be eased but with Russian drone attacks on Ukrainian cities escalating, the opposite is now looking likely.
• US gas fell 3.1% to $3.52 to be up 2.2% this month as supplies remain ample with elevated storage. Spring to date has been mild minimising cooling demand. Summer officially begins on June 20. It peaked at $3.82 on Friday. 

Japan's May PPI was below market expectations, we fell 0.2% m/m (against a +0.2% forecast). April's rise was revised to +0.3% (from 0.2%). In y/y terms we printed 3.2%, against a 3.5% forecast (prior was 4.1%). 

• The chart below plots the headline PPI y/y, against Japan CPI y/y. At face value it is suggesting less upside pressure on headline CPI pressures.
• In terms of the detail, manufacturing PPI was down 0.4%m/m. Weakness was evident in commodities, particularly petroleum, coal (-4.8%m/m). Iron ore and steel was also down in m/m terms.
• Import prices for commodities were down 1.1%m/m, continuing a negative trend, now off 10.3% in y/y terms. 

Fig 1: Japan PPI Y/Y & Nationwide CPI Y/Y 

Source: Bloomberg Finance L.P./ MNI 

TYU5 is trading 110-07, up 0-00+ from its close. 

• The US 2-year yield opens around 4.016%, unchanged from its close.
• The US 10-year yield opens around 4.465%, unchanged from its close.
• MNI FED: Bessent Emerging As Contender for Powell Successor. Bloomberg reports that Treasury Secretary Bessent is emerging as a possible contender to succeed Fed Chair Powell when his term expires in May 2026. It followed President Trump on Friday saying he would name a successor for Powell “very soon” (see here).
• MNI US INFLATION: MNI US CPI Preview: An Important Pre-FOMC Steer. Analyst unrounded estimates see core CPI inflation accelerating mildly to 0.27% M/M (median, 0.28% average) in May after 0.24% M/M in April. We’ve seen an unrounded range of 0.23-0.34% M/M, with some sizeable discrepancies in used cars and lodging away from home as well as a CPI-specific airfares. The broad assumption is that May could have started to see a greater tariff impact than April but that firmer increases are more likely to show in summer months.
• The 10-year yield held its support around the 4.35% area last week. While this level holds focus will remain on potentially extending higher, CPI tonight will dictate direction.
• Data/Events: CPI, Federal Budget Balance