AUSSIE BONDS: Cheaper, Narrow Ranges, Heavy US Calendar Today & Tomorrow

There was a slight improvement in China’s May NBS PMIs with the composite rising 0.2 points to 50.4, holding above the breakeven 50-mark. JP Morgan believes that there should be some “easing” in “near-term external pressure”. It’s “baseline scenario assumes China’s growth to moderate to an average 3%q/q saar pace through the rest of the year, with full-year 2025 GDP growth at 4.8%yoy.”

• JP Morgan sees “the main challenges to the Chinese economy coming from structural imbalance between production, consumption and investment, and deflation pressure, calling for ongoing growth-support measures.”
• “The manufacturing PMI recovered 0.5-pt to 49.5 upon US-China tariff de-escalation, though non-manufacturing PMI fell modestly by 0.1-pt to a 50.3 (four-month low). In all, the composite PMI rose 0.2-pt to 50.4.”
• “The export orders component of the manufacturing PMI recovered by 2.8-pt to 47.5 upon tariff de-escalation, as surveyed corporates reported a notable rebound in export demand from the US market. The new orders and output components also ticked up in May.”
• “The future output component recovered moderately in May, suggesting moderate improvement in manufacturers’ sentiment amid tariff de-escalation and easing of near-term external pressure.”
• “While there have been growing concerns that escalating tariff risks could hit employment notably, it is encouraging to note that labor market conditions seem to have stabilized somewhat amid a near-term improvement in export sector sentiment.”
• “The pricing components of the manufacturing PMI eased further in May, suggesting lingering deflation pressure.”
• “The service activity index edged up 0.1-pt to a still subdued level of 50.2, with major drags from the real estate service sector and financial services.”

ACGBs (YM -1.0 & XM -2.0) are modestly cheaper after today’s domestic data drop.

• ANZ job advertisements fell 1.2% m/m in May versus a revised -0.3% in April.
• MI inflation index fell 0.4% m/m in May versus +0.6% in April. Inflation index rose 2.6% y/y versus +3.3% in April.
• S&P Global manufacturing PMI falls to 51 from 51.7 in April.
• Cash US tsys have bear-steepened, with yields flat to 3bps higher, in today's Asia-Pac session.
• (MNI) The Federal Reserve should aim for a much smaller balance sheet in order to have a smaller footprint in financial markets and reduce the risk of inflationary bursts like the one experienced after Covid, former Fed Board Governor Kevin Warsh said Friday. The Fed's balance sheet "is trillions larger than it needs to be. We can't make this change overnight," said Warsh, who is seen as a leading candidate to replace Jerome Powell as Fed chair next year.
• Cash ACGBs are 1-2bps cheaper with the AU-US 10-year yield differential -14bps.
• RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut in July is given a 71% probability, with a cumulative 76bps of easing priced by year-end.

Natural gas fell on Friday as global energy demand concerns resurfaced from increased protectionism as US President Trump noted that US-China trade talks had stalled. European prices fell 4.3% to EUR 33.87, close to the intraday low, but finished May up 4.6% on the month driven by fading hopes of a reduction in sanctions on Russia and continued refilling needs.

• Ukraine attacked Russian airbases with drones destroying 40 bomber planes, according to the BBC. It appears in response to larger Russian attacks on Ukraine recently including Kyiv. Talks are due to start Monday. There is a push by some US lawmakers to penalise imports from countries buying Russian fossil fuels, which would target China and India. The EU plans to phase it out completely.
• US gas fell 1.7% to $3.46 on Friday but was down 4.8% on the month as cooling demand as has so far been soft allowing inventories to rise to robust levels. It reached $3.56 before trending down but has started this week higher rising 2.1% to $3.52. Weather is mixed in the second week of June with the west and east US warmer but central US cooler.
• Lower-48 US gas output rose 3.9% y/y on Friday and demand +4.6% y/y, according to BNEF data.