OIL: Crude Risk Premium Unwinding As Focus Returns To Fundamentals
Oil prices fell sharply following the announcement of a ceasefire between Iran and Israel early in the session. They have recovered somewhat during the day but remains down following Monday’s sharp drop. The end to the war is due at 0800 AEST Wed/2300 BST Tues/1800 EDT Tues. Iran’s military action was due to stop at 0500 BST and Israel’s at 1100 BST. US President Trump has warned that the truce shouldn’t be violated.
- WTI is down 3.2% to $66.34/bbl to be 10.1% lower this week. It fell to $64.38 early in the session, just below support at $64.51, 50-day EMA. Brent is -2.8% to $69.48/bbl off today’s trough of $68.23, above the 50-day EMA at $67.99. The USD index is down 0.3%.
- The Iran-Israel conflict worried markets that supply could be severely impacted especially if Israel attacked Iranian oil infrastructure or Iran disrupted shipping in the Strait of Hormuz. Despite the ceasefire being in its early hours, markets seem reassured and oil’s geopolitical risk premium is unwinding.
- Attention is now likely to return to demand and supply issues stemming from trade disputes and OPEC output normalisation – they hold their next meeting on July 6 to decide August output. A market surplus is generally expected this year and next. US industry-based inventory data is out today.
- Later Fed Chairman Powell gives the semi-annual policy testimony and is expected to be questioned on the unchanged stance. Also the Fed’s Hammack, Williams, Kashkari, Collins and Barr speak. ECB President Lagarde appears as well as de Guindos and Lane.
- In terms of data, US June Philly non-manufacturing, Q1 current account, April house prices, June consumer confidence & Richmond Fed business sentiment are released. Germany’s June Ifo survey and Canada’s May CPI also print.
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JGB TECHS: (M5) Rallies off Lows
- RES 3: 147.74 - High Jan 15 and bull trigger (cont)
- RES 2: 146.53 - High Aug 6
- RES 1: 141.48/142.95 - High May 2 / High Apr 7
- PRICE: 139.40 @ 15:42 GMT May 23
- SUP 1: 138.54 - Low May 22
- SUP 2: 136.57 - 1.382 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
- SUP 3: 134.89 - 2.000 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
JGBs have rallied off recent lows and for now, however a bearish theme remains intact following the reversal that started Apr 7. A continuation lower would signal scope for an extension towards 136.57, a Fibonacci projection. On the upside, a reversal higher would instead refocus attention on 142.95, the Apr 7 high. The first important resistance to watch is 141.48, the May 2 high. A break of this level would be viewed as an early bullish signal.
US FISCAL: Total Tariff Income Jumping In May As New Rates Hit
Treasury reported a record $16.5B in customs/excise taxes on May 22, reflecting the large increase in tariff rates that went into effect in April.
- Today's report is important because it represents the largest tariff collections of the month which are typically on a due date around the 22nd, when most corporate importers make their payments.
- Thursday's one-day collection is a record, and the month has already set a new record. Tariff revenues have totaled $22.3B so far in May, and are came in at $17.4B in April (after averaging $8.1B/month in 2024).
- For the fiscal year as a whole so far, customs duties have totaled just under $93B, per the Treasury Daily Statement.
US FISCAL: Extraordinary Measures Continue To Dissipate Alongside Treasury Cash
Treasury's latest estimate of the size of "extraordinary measures" available to use "in order to prevent the United States from defaulting on its obligations as Congress deliberate[s] on increasing the debt limit" is down to $67B on May 21 (of an available $299B), vs $82B a week earlier.
- The amount hit the 2nd lowest level since the debt limit impasse started, at $46B, on May 20 (the low was $34B on Feb 24).
- With $476B in cash in the Treasury General Account on May 21, that left the total resources available to Treasury at $543B, the least since April 14 - the day before the annual April 15 tax deadline.
- Treasury Sec Bessent warned Congress earlier this month that "there is a reasonable probability that the federal government's cash and extraordinary measures will be exhausted in August while Congress is scheduled to be in recess. Therefore, I respectfully urge Congress to increase or suspend the debt limit by mid-July".
