OIL: Crude Higher After US Inventories Fall, Also Monitoring Truce
After falling around 12% over the first two days of the week on a de-escalation of Middle East tensions, oil prices are over a percent higher today. They have stabilised as markets generally monitor the Iran-Israel ceasefire which so far today has held. A reported US crude inventory drawdown has also helped. WTI is up 1.4% to $65.24 after a low of $65.00, while Brent is 1.1% higher at $67.89/bbl, just off the intraday high OF $68.16. The USD index is slightly higher.
- With the abatement of concerns that Middle Eastern oil supplies would be impacted by conflict, fundamentals are back in focus. Bloomberg reported that US crude inventories fell 4.28mn barrels last week after declining over 10mn the previous week, according to people familiar with the API data. The official EIA data is out Wednesday. It reported a 11.5mn drop the previous week.
- Also on the supply front, there are tentative indications that restrictions on Iran could eventually be eased following the ceasefire agreement. Unexpectedly, President Trump openly allowed Iran to continue selling oil to China.
- OPEC also meets virtually on July 6 to decide August’s production target. Another +400kbd increase is likely as the group normalises output after reducing it, targets market share and punishes overproducing members.
- On the demand side, the progress of trade negotiations ahead of the July 9 deadline will also be monitored closely. Increased US trade protectionism rattled crude as it feared energy demand would sink.
- Later Fed Chair Powell continues his testimonies. The Fed’s Goolsbee, ECB’s Donnery and BoE’s Lombardelli speak. US May new home sales/permits print.
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JGBS: Modest Bull-Flattener, PPI Tomorrow, 40Y Supply On Wed
JGB futures are stronger, +31 compared to the settlement levels, after recovering much of the losses seen earlier in the session. Futures had closed Friday’s overnight session at +56.
- US equity-index futures have climbed in early Asian trading after President Donald Trump extended a deadline on aggressive European tariffs. Trump agreed to delay the date for a 50% tariff on goods from the European Union to July 9 from June 1.
- US tsy futures (TYM5) have weakened in today’s Asia-Pac session, with TYM5 at 109-27, -0-07+ from closing levels. Cash US tsys are closed today for Memorial Day.
- “Neel Kashkari said major shifts in US trade and immigration policy are creating uncertainty for the Fed to move on interest rates before September." (BBG)
- (Bloomberg) - "Long-term Japanese yields are set to climb further with JGB traders facing a 40-year debt auction, followed by Tokyo inflation data this week." (per BBG)
- Cash JGBs are 1-3bps richer across benchmarks with a flattening bias. The benchmark 30-year yield is 3.0bps lower at 3.023% versus the high of 3.204%. It was as low as 3.0% earlier in the session.
- Swap rates are 1-3bps higher with a flatter curve and swap spreads are wider.
- Tomorrow, the local calendar will see PPI data ahead of 40-year supply on Wednesday.
FOREX: Asia FX Wrap - USD Struggles Across The Board
The BBDXY has had a range of 1207.08 - 1211.08 in the Asia-Pac session, it is currently trading around 1208. President Trump agrees to an extension to July 9 for Europe. https://x.com/TrumpDailyPosts/status/1926778871442972759. The EU is ready to advance talks and needs until July 9 to reach a good deal, Ursula von der Leyen said on X. https://x.com/vonderleyen/status/1926729529436913794.
- EUR/USD - Asian range 1.1363 - 1.1419, Asia is currently trading 1.1410. EUR has traded higher and remained bid throughout the Asian session. What stood out from the price action on Friday was how well the EUR held up in the face of a potential 50% increase in tariffs, and it was again the USD that took the brunt of the impact. This clearly shows the market's current outlook and leans into the growing “sell America “ theme.
- GBP/USD - Asian range 1.3524 - 1.3593, Asia is currently dealing around 1.3580. The GBP is breaking the Pivotal Weekly Resistance in the 1.3500 area, I would be weary considering it is in thin liquidity on an Asian Monday morning, with a US and European holiday. A sustained break though would signal a potential acceleration of the trend higher.
- USD/CNH - Asian range 7.1616 - 7.1824, the USD/CNY fix printed 7.1833. Asia is currently dealing around 7.1690. Sellers should be found on a bounce back towards the 7.2200 area again. Andreas Steno Larsen on x : "The elephant in the room USDCNH needs to go to 6.80 at least. https://x.com/AndreasSteno/status/1926115935200440525"
Cross asset : SPX +1.07%, Gold $3350, US TYM5 109-27 , BBDXY 1208, Crude oil $61.76
Fig 1: GBP/USD Spot Weekly Chart
Source: MNI - Market News/Bloomberg
MNI EXCLUSIVE: Insights Into UK-China Trade Relations
