JAPAN DATA: CPI Below Forecasts, Services Inflation Slows To Under 1%y/y

Natural gas was higher on Tuesday over the ongoing closure of the Strait of Hormuz and uncertainty over when or even if further US-Iran talks will take place. After threatening more attacks on Iran, President Trump announced an indefinite extension of the ceasefire helped prices to stabilise and between the lines suggests that negotiations should continue at some point. However, the US blockade continues.

• In response to ongoing Middle East uncertainty, European gas jumped 7.1% to EUR 43.15 but is still down 15% this month in response to the pause in hostilities and hopes that LNG will be able to leave the area. However, so far, no LNG vessels have been able to pass the Strait.
• May 26 Dutch TTF reached a peak of EUR 44.485, the highest since 14 April, signalling a major market move yesterday. Vitol’s Escobar noted that the rise in gas prices since the start of the Iran War has driven some “demand destruction” in manufacturing and warned that could result in shortages of other products, such as fertiliser (Bloomberg).
• US gas carefully moved higher on Tuesday by 0.8% to $2.710 close to the intraday high of $2.72 but it is down 6% in April and currently lower trading around $2.685.
• Upside is limited in the US given that domestically it is in a shoulder season and forecasts are signalling mild to warmer weather towards month end. There is also unlikely to be increased demand for LNG exporters as Bloomberg reports their facilities are close to capacity.

• MNI: JAPAN MARCH EXPORTS +11.7% Y/Y; FEB +4.0%
• JAPAN MARCH EXPORTS POST 7TH STRAIGHT Y/Y RISE

In post-Tokyo trade, JGB futures closed weaker, -23 compared to settlement levels, after US tsys finished showing a bear-flattener, with yields 2-6bps higher. The initial sell impetus for US tsys came from strong US data (ADP weekly employment and Retail Sales) and renewed uncertainty over US/Iran peace talks in Islamabad ahead of Wednesday evening's ceasefire deadline added to the reversal in early sentiment.

• However, US equity futures have re-opened higher in the first part of Asia Pac Wednesday trade. This comes after late Tuesday US trade where US President Trump announced an extension of the US/Iran ceasefire. To recap, he cited the request came from the Pakistan PM and that the ceasefire would be in place until the Iran government presented a unified proposal.
• Bloomberg - "BOJ Is Said Leaning to April Hold While Keeping Hawkish Stance. Officials still favor raising rates but see little need to rush with the economic outlook potentially shifting due to the situation in the Middle East."
• "The oil options market and curve are again pricing tighter coming physical supply as time runs out for diplomacy, with Hormuz still effectively shut and shortages of crude and product growing. Asia is where the squeeze is most visible." – BBG
• Today, the local calendar will see Trade balance data.