EM ASIA CREDIT: China Water Affairs Group: New USD deal

European natural gas rose 1% to EUR 32.65 on Friday to be 2.1% higher last week and 3.2% this month. It reached an intraday high of EUR 32.90. It is finding support from increased geopolitical tensions between NATO and Russia and calls for more sanctions and G7 tariffs on those who buy Russian energy.

• Robust LNG imports have helped Europe refill storage ahead of winter which is now close to 80% full.
• Further sanctions on Russia are being discussed by the EU and US but President Trump has said that NATO needs to stop importing Russian crude before he’ll impose further restrictions. US Treasury Secretary Bessent said that the G7 should also place duties on countries buying Russian oil.
• Ukraine continues to target Russia’s energy infrastructure with drones striking the large Kirishi oil refinery.
• Bloomberg reported that China received a fourth LNG cargo from Russia’s sanctioned Arctic 2 gas facility.
• US gas prices spent most of Friday trading below $3.00. They finished up 0.7% to $2.955 after reaching $3.00 but were unable to hold the break. They were down 3.1% on the week to be -1.4% in September.
• The US found support from a stable Baker Hughes gas rig count as there have been concerns of excess supply. Forecasts for warmer weather for much of the US in the second half of September have also helped.
• Lower-48 US gas production rose 7.1% y/y on Friday while demand fell 3.2% y/y and weekly flows to LNG export facilities -4.8% w/w, according to BNEF data. 

The S&P(ESZ5) Friday night range was 6631.25 - 6662.75, SPX closed -0.05%, Asia is currently trading around 6644. The S&P traded sideways as the market turned its focus towards the FOMC this week and what the potential upcoming cutting cycle could look like. This morning US futures have opened slightly lower, E-minis -0.05%, NQU5 -0.05%. The stock market continues to look overdone and is in what is supposed to be a difficult seasonal period, but it remains in an uptrend and there does not look to be any imminent signs of a correction yet as it continues to grind higher, dragging an underweight institutional market back in. 

• (Bloomberg) - Very little seems to dent the enthusiasm of equity investors, despite a minor pullback late Friday. Renewed enthusiasm for the AI narrative following Oracle’s blowout forecasts and optimistic conference call.
• The Real Fly on X: “The Fed has cut rates 12 times when the S&P 500 was within 1% of its all-time high. The market was higher one year later all 12 times (with a median return of 15%). JP MORGAN.”
• RenMac on X: “Fed Should Go 50… But Likely Won’t – Neil Dutta”
• Lance Roberts on X: "No recession is expected, but margin data and weakening payrolls suggest more risk than consensus assumes. While CPI grabs headlines, it lags the real signals of slowing margins and softer jobs. Markets are pricing in easier monetary policy rather than true resilience, leaving room for policy mistakes — especially if tariffs act as a tax on growth. Rate cuts are possible, but the scale depends on payroll trends, and the White House’s push to steer outcomes away from the Fed adds both opportunity and responsibility." -  (Steve Blitz, TS Lombard)
• The Kobeissi Letter on X: “The historic run continues: The S&P 500 is now up +31% over the last 5 months, the most since the 2020 pandemic recovery. This marks the third-biggest 5-month gain over the last 20 years. This is only 1 percentage point behind the post-2008 Financial Crisis recovery of +32%.” 

Fig 1: SPX(ESZ5) Daily Chart

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

Friday delivered strong inflows for both South Korea and Taiwan. South Korea saw over $1.1bn in net inflows, which was the strongest inflow day since mid-June last year. It also bought the 5-day sum of net inflows to over $3bn. The Kospi has surged to fresh record highs, pushing through the 3400 level in the first part of trade today. Onshore media is reporting that the government won't go through with plans to lower the threshold for stock capital gains (with original plans being this would be lowered to 1bn won form the current 5bn won). Such a step was suggested by President Lee last week, so today's outcome is unlikely to surprise the market much.  

• For Taiwan, the 5-day sum of net inflows remained very elevated last week at +$5.6bn. Broader tech sentiment rallied last week, while the onshore Taiex index is just off record highs. Chip/AI demand sentiment remains firm.
• Elsewhere, outflow momentum from Indonesia slowed to nearly flat on Friday. Still, we had decent outflows the week of just over $400mn. This week we have the BI decision, where no change is expected. It will be a focus point though given the new FinMin has a strong pro-growth stance.   
• The see-saw nature of Indian flows continued, while other markets saw little net aggregate shifts in terms of flows. 

Table 1: Asian Markets Net Equity Flows 

Source: Bloomberg Finance L.P./MNI