AUSTRALIA: Australian Tax Exclusive

Subdued demand for gas in Asia drove European prices lower on Tuesday, as the two regions compete for global supplies. Weak Asian consumption due to higher gas prices and milder weather frees up cargoes for Europe’s refilling needs but a heatwave could change this in the coming months. The market also remains sensitive to unplanned outages. European gas fell 1.5% to EUR 36.70 yesterday but is still up 13.6% in May. 

• European prices reached a high of EUR 37.94 during the session as it becomes increasingly clear that Russia is not looking for a peace deal in Ukraine, and so the prospect of an easing of sanctions is fading. In fact, the situation appears to be moving in the other direction with Europe imposing new measures against Russian financial intermediaries and its shadow fleet and the US is now also considering whether to impose new sanctions.
• US natural gas rose 2.3% to $3.41, close to the intraday high of $3.45, due to forecasts for warmer weather across much of the US at the start of June (NatGasWeather), which could trigger an increase in cooling demand which has been below average so far this season. US prices are up 3.8% this month.

The ESM5 Overnight range was 5868.25 - 5941.75, Asia is currently trading around 5935. A strong night for US stocks across the board, tailwinds were provided by a rebound in consumer confidence and a surge in bonds. “Tuesday's stock rally has the hallmarks of a short-cover and systematic-led rally. With computer-generated accounts skewed to buy equities over the coming week, that’s particularly true in Nasdaq futures, where even a flat tape will force CTA’s to buy +10% of their max size as algos accumulate their largest position size.”(BBG)

• “Nvidia’s earnings later today could serve as a barometer, with the world’s most valuable chipmaker expected to post another quarter of strong growth. Revenue from its core chip business is forecast to rise over the next four quarters, and options pricing implies a post-earnings move of more than 7%, according to data curated by Bloomberg.”(BBG)
• Bloomberg - “Yet not all is rosy under the surface. Bank of America analyst Vivek Arya sees potential cracks forming beneath the headline numbers. "We look for modest Q1 beat vs. the $43 billion guide and $43.4 consensus," Arya said in a recent note.
• "Yet, the expert warned that Nvidia’s gross margins could fall sharply due to a $5.5 billion inventory write-off tied to U.S. government restrictions on high-end H20 chips sold to China. That could drag gross margins from the guided 71% to just 58%, pushing pro forma EPS closer to $0.74, nearly 16% below consensus.”
• Stocks trade like a beachball being held under water, the move looks overdone but momentum type funds and share buybacks have kept the market well supported.
• In the short-term stocks continue to look overbought but dips are expected to be met with demand, the first buy-zone is back towards the 5600/5700 area.

TYM5 is trading 110-13+, down 0-03 from its close.

• The US 2-year yield opens around 3.957%, down 0.02 from its close.
• The US 10-year yield opens around 4.445%, unchanged from its close
• In supply, the 2Y Note was well digested (1bp trade-through was the best since February), helping consolidate Treasury gains through the afternoon session.
• “Sale of $69 billion 2-year notes was solid, trading 1bp through the WI yield with bidding statistics broadly solid, the $70 billion 5-year sale tomorrow will be a sterner test of the Street’s demand.”(BBG)
• “The US Treasury cut the size of its four- and eight-week bill auctions for the first time since February.”(BBG)
• The 10-year looks likely to see supply on any dips in yield in the short-term, should yields hold above 4.35/40% the target looks to be the 4.75% area. Watch for any announcements relating to the SLR, this could have an impact on a market that is already quite short.
• Data/Events: Wednesday's calendar includes more regional Fed surveys (Richmond services/manufacturing, Dallas services) and an appearance by FOMC's Kashkari, with supply including 2Y FRN and 5Y Note. We then get the minutes of the May FOMC meeting in the afternoon.