US TSYS: Cash Open

ACGBs (YM +1.0 & XM +2.5) are slightly richer after US tsys finished Friday, ~8bp richer across the 2- to -10-year maturities. The local market was closed on Friday for the ANZAC Day holiday.

• Headline risk trumped data ahead of the weekend. Early Friday headlines suggested some thawing in US-China relations. An interview with President Trump was published in which he said he and China's Xi had been in contact, while the Chinese were considering easing tariffs on some US imports.
• However, President Trump tweeted later that he "Won't Drop China Tariffs Unless They Give Us Something", followed by "People Are Starting To Understand How Good Tariffs Are".
• Cash ACGBs are 2-4bps richer with the AU-US 10-year yield differential at -4bps.
• Swap rates are 4-5bps lower, with the 3s10s curve flatter.
• The bills strip is slightly mixed, with price movements ranging from -1 to +1.
• RBA-dated OIS pricing is flat to 4bps softer across meetings today. A 50bp rate cut in May is given a 12% probability, with a cumulative 117bps of easing priced by year-end (based on an effective cash rate of 4.09%).
• Today, the local calendar will be empty.  
• The AOFM plans to sell A$1200mn of the 2.75% 21 June 2035 bond on Friday.

Oil prices finished moderately higher after falling substantially through the day but then trending higher during the US session. It was helped by hopes of trade agreements being reached although a US-China deal still seems some way off with China denying talks are taking place. Crude has worried about the impact of increased trade protectionism on energy demand. The USD index rose 0.2%.

• WTI rose 0.6% to $63.17/bbl after a low of $61.80. It reached a high of $63.41 close to the end of the day. It has started the day higher at $63.30, as markets wait for China’s policy announcement today. The bearish theme is intact with initial support at $58.29 and the bear trigger at $54.67. Initial resistance is at $65.84, 50-day EMA.
• Brent was 0.5% higher on Friday at $67.11/bbl, close to the intraday high of $67.18. Before trending higher it reached a trough of $65.55. It fell 1.6% last week to be down 10.5% in April demonstrating that the primary direction is down. Initial support is at $62 with the bear trigger at $58.40, while resistance is at $69.58, 50-day EMA.
• There was a major explosion at a significant port in Iran on the strategic Strait of Hormuz. Meanwhile, Iran-US talks progressed with a further meeting to be arranged in Europe.
• US energy secretary Wright said that the government would like to see higher US output but admitted that crude around $50 was not sustainable for producers.
• Also, on the supply side, OPEC meets on May 5 to discuss its production plans for June. It increased output in April by more than expected and there are reports that there is internal pressure for quotas to be raised again.

In post-Tokyo trade, JGB futures closed XX, X compared to settlement levels, after US tsys finished on Friday ~8bp richer across the 2- to -10-year maturities. 

• Headline risk trumped data ahead of the weekend. Early Friday headlines suggested some thawing in US-China relations. An interview with President Trump was published in which he said he and China's Xi had been in contact, while the Chinese were considering easing tariffs on some US imports.
• However, President Trump tweeted later that he "Won't Drop China Tariffs Unless They Give Us Something", followed by "People Are Starting To Understand How Good Tariffs Are".
• Gains in US tsys were pared slightly after higher than expected UofM sentiment & current conditions data. Overall 1Y inflation expectations were revised to 6.5% (prelim 6.7%) in the final April release for a still large acceleration from 5.0% in March and its highest since 1981.
• Liquidity across financial markets, including the Treasury market, deteriorated after President Trump's April 2 reciprocal tariffs announcement, but market functioning was generally orderly, according to the Federal Reserve's semiannual report on financial stability, released Friday.
• Today, the local calendar will be empty ahead of tomorrow’s holiday and Thursday's BoJ Policy Decision.