USD: BBDXY - Solid Demand Around 1200 Helps Lift The USD, Awaits NFP

Natural gas was lower on Monday with European prices down 4.2% to EUR 33.81 but the rally earlier in the week in response to US threats of increased restrictions on Russian fossil fuels meant that it was still up 2.4% on the week. Generally weaker risk appetite as the US effective tariff is now sharply higher and signs the economy is slowing as well as steady European refilling drove prices down on Friday. 

• Strong LNG imports have helped Europe refill storage ahead of winter, which is now at around 68%, according to Bloomberg, but the target is 90% by November 1 and so the region remains vulnerable to disruptions and increased demand. Temperatures are up in Asia and are forecast to rise again in Europe later in August.
• US gas fell 0.4% to $3.095 on Friday to be down 2% last week. It traded between $3.131 and $3.051 but has broken below the lower level at the start of Monday’s trading. It is currently down 1.6% to $3.034. Baker Hughes data showing an extra 2 gas rigs last week, the third weekly increase, added to existing excess supply concerns after the EIA reported a larger-than-expected inventory build.
• US lower-48 production rose 3.6% y/y on Friday, while demand fell 13% y/y. Temperatures are forecast to be higher towards the end of the week for the Midwest, Southwest and Texas but cooler for the East and Northwest.
• Purchases of US energy have been part of a number trade deals, especially the US-EU agreement. Mexico is now also talking of including gas in its talks with the US.
• Japanese LNG demand has come down with its nuclear power restart and Bloomberg estimates that LNG imports could fall this year by 4.4%. Another 13 plants have been approved, which could reduce gas usage further.
• Ukraine said that it hit a gas pipeline in Russia’s Volgograd region. Gas from Turkmenistan transits through Uzbekistan and Kazakhstan to Russia through the pipeline, which apparently provides energy to Russian defence industries. (Interfax-Ukraine/BBC) Oil infrastructure was also struck. 

The ESU5 Friday night range was 6339.50 - 6358.25, Asia is currently trading around 6278. The Equity market correction accelerated lower on Friday in response to the NFP data and the implications it has for growth going forward. This morning has seen US futures open a little higher, pulling back a little from Friday’s lows, ESU5 +0.22%, NQU5 +0.30%. The broader market outside of Tech gave us an inkling of what was to come and continues to struggle Dow Transports -2.21% , Regional US Banks - 2.08%, Russell -2.03%. Price is testing first support around 6200/6250, I suspect bounces back towards 6300/50 should now initially find sellers. A break below 6200 would potentially signal a deeper correction back to 5900/6000.

• (Bloomberg) -- The US equities rally has been powered less by euphoria and more by a constant bid from retail buying, systematic investors and companies buying back shares, suppressing volatility and creating a bullish feedback loop. With those flows potentially waning, institutional participation still limited and the macro backdrop in question, a pullback is in order.
• Julian Brigden on X: “After amazing numbers from meta and msft last week's price action, in the Mag 7 proved one of the adages of trading, which is "good news, bad price action. Go with the price action.”
• Bob Elliott on X: ”Stock and bond markets continue to price in extremely strong growth expectations."
• ISABELNET on X: “Heavily shorted stocks generally underperform the broader market over the long term, but in 2025, they significantly outperformed, driven primarily by aggressive short covering. h/t @DeutscheBank”
• The Market Ear on X: "Systematic were suffering the 3rd worst month of performance on our records" (GS)
• Daily Chartbook on X: "In July, retail investors' allocation to stocks rose to the highest (68.3%) since January while bond (15.7%) and cash (16.0%) allocations fell to 4- and 7-month lows, respectively.”
• Short-term this continues to look stretched as we start seeing the start of a potential correction lower. First support is back towards the 5900/6000 area.

Fig 1: SPX(ESU5) 120min Chart

Source: MNI - Market News/Bloomberg Finance L.P

The Sep JGB future sits at 138.79, +.71 versus settlement levels in latest dealings. Highs for the session so far rest at 139.05. US 10yr futures are off earlier highs, so this may have helped curb upside in JGB futures. 

• In the cash JGB space, yields are lower across the board, with the belly leading the move. The 3-7yr tenors are all off by around 7-8bps at this stage. The 10yr JGB yield was last near 1.50%, off around 6bps. Earlier we got to lows of 1.472%. Recent highs were marked above 1.60%. 20-40yr tenors are seeing less yield losses.
• In the swap space, it is a similar story, albeit with back end rate 20-40yr, up modestly in yield terms. The 10yr was last little changed, holding close to 1.28%.