US TSYS: Cash Open

Natural gas prices were weaker on Friday but Europe finished the week higher while the US was lower as the two regions are in different inventory positions. Europe remains vulnerable to unscheduled outages and supply disruptions as it refills storage. Gas fell 0.5% to EUR 35.13 to be up 1.5% last week and 8.7% in May. Negotiations on trade, Ukraine and Iran could also drive prices. 

• Morgan Stanley estimates that Europe will need to import 45% more LNG this year to reach storage rates of around 80%. Relatively low demand from Asia so far this season has helped it to increase LNG cargoes more than usual. However, there was unplanned maintenance at Norway’s Troll and Aasta Hansteen fields last Thursday.
• US gas fell 1.1% to $3.33 on Friday to be down 12.4% on the week but little changed in May. The down move was driven by a higher-than-average inventory build as well as forecasts for milder weather in parts of the US at the end of the month, reducing the chance of a pickup in cooling demand.
• US lower-48 gas production rose 4.5% y/y on Friday while demand fell 2% y/y. The EIA reported a 100 bcf rise in inventories in the previous week, above the 5-year average of 83bcf. The total is now 2.6% above the 5-year average, according to Bloomberg.
• In April China’s imports of LNG in volume terms fell 24.8% y/y after -24.5%, while pipeline natural gas rose 23.6% y/ up from 2.0% as it increases purchases from Russia.

The focus of the week will be on the RBA which is widely expected to cut rates 25bp to 3.85%. A statement on monetary policy including updated staff forecasts will also be published with the decision at 1430 AEST followed by Governor Bullock’s press conference at 1530 AEST. Deputy Governor Hauser speaks on Thursday at 1830 AEST about his trip to China.

• Data releases are minimal this week. Westpac’s April leading index is released on Wednesday. It fell in March and was showing signs of an impact from US trade policy announcements. The series leads detrended growth by three to nine months.
• Preliminary May S&P Global PMIs print on Thursday. They are signalling slight growth in activity across both services and manufacturing. 

In post-Tokyo trade on Friday, JGB futures closed weaker, -12 compared to settlement levels, after the cash US 10-year yield ranged from 4.3863% to 4.4770%, closing around 4.47% (+5bps).

• US tsy 10-year futures (TYM5) reacted in early Asia-Pacific dealings to late Friday's news that Moody's Ratings downgraded the US credit score.
• Bloomberg - "Moody's Ratings downgraded the US credit score to Aa1 from Aaa due to an increase in government debt and a higher interest burden."
• "Asked about the Moody's Ratings downgrade of the country's credit rating Friday during an interview on NBC's Meet the Press with Kristen Welker, Bessent said, "Moody's is a lagging indicator - that's what everyone thinks of credit agencies.""
• "The move follows downgrades by Fitch Ratings and S&P Global Ratings, with Moody's citing a decline in fiscal metrics that can no longer be counterbalanced by the US' economic and financial strengths."
• Today, the local calendar will see the Tertiary Industry Index alongside 1-year supply.
• The G7 will be holding a meeting from the 20th to the 22nd, there will be attention on any discussion between the US and Japan, particularly if foreign exchange rates are discussed concerning the tariffs.