OIL: Crude Stabilises After Sharp Falls As Middle East Tensions Ease

Goldman Sachs: "USD: No quiet time. We think the Dollar's sputtering response to the evolving One Big Beautiful Bill can mostly be attributed to bad timing. The deficit details look close to expectations, and typically in G10 economies fiscal support together with higher yields is a recipe for currency strength. In that context, the Dollar's response to “big and beautiful” so far has been small, but ugly. The timing of the budget process has led the market to focus on the US's large and persistent deficit financing needs at a time when investors were already eyeing the durability of foreign demand for US assets. Some details of the draft proposal, such as a potential change to some foreign business taxes, have also unnerved some investors because, even if the application is relatively narrow, the perception of a less-friendly US stance towards foreign capital only exacerbates current concerns. This has once again led to a concerning EM-like cross-asset response to the news flow. While we think this market response is notable and likely to continue for now, we still think the biggest risk to our forecast for further Dollar depreciation is lingering “US exceptionalism” and we are mindful that sustained fiscal support could eventually support that outcome. But for now, we think investors should maintain relatively broad Dollar shorts. Both EUR and JPY offer attractive portfolio hedges against what is still likely to be a difficult period for risk assets in the context of higher bond yields and the impact of higher US consumer prices (recent news supports our view that the tariff impact will fall on US businesses and consumers). Our bias is that more protectionist policies are likely to weigh on the Dollar over time because the market will extrapolate any escalation to other negotiations as well, and it will reinforce the uncertainty in the outlook for returns on US assets. And we continue to think that the moves in Asia—and our out-of-consensus forecasts for a stronger CNY versus the Dollar—warrant as much attention as the focus on EM carry trades, where the Dollar's recent positive correlation with risk makes it a more attractive funder than usual."

The Friday night range was 142.42 - 143.56, Asia is currently trading around 142.85. The USD got sold across the board on Friday in response to Trump imposing a 50% tariff on Europe. The JPY continues to benefit as a safe haven when risk gets knocked like it did on Friday.

• Bloomberg - “Japan’s chief trade negotiator indicated he aims to resolve tariff talks in time for a June meeting between PM Shigeru Ishiba and Donald Trump on the sidelines of the G-7 gathering.”
• FT - SoftBank’s Masayoshi Son proposed a US-Japan sovereign wealth fund to invest in tech and infrastructure.
• Bloomberg - “President Donald Trump announced a partnership between US Steel Corp. and Japan's Nippon Steel Corp., which will keep US Steel in the US and create at least 70,000 jobs.”
• “The partnership will add $14 billion to the US economy, with the bulk of the investment occurring in the next 14 months, according to Trump.”
• USD/JPY traded under pressure for most of the Friday night session, some demand back towards 142.50 eventually held up the decline. The JPY continues to benefit as a safe haven when risk gets knocked like it did on Friday.
• The price action for the week shows the market is still much more comfortable selling rallies, resistance is now back towards 144.00/145.00. The focus will turn once more to the pivotal 140.00 area, a break of which will open a much deeper move lower.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 144.00($1.06b), 143.00($713m) Upcoming Close Strikes : 143.00($1.71b May 28), 139.75($1.56b May 29).
• CFTC data shows Asset managers maintained their already extensive JPY longs, and leveraged funds continue to build on their newly initiated shorts.

• Data/Event : Leading Index

  Fig 1 : JPY CFTC Data

  

  Source: MNI - Market News/Bloomberg

• Bank of Korea to Sell KRW500bn 91-Day Bonds
• South Korea to Sell KRW2.9tn 5-Year Bonds
• Philippines To Sell PHP 8.0Bln 91D Bills (PH0000059164)
• Philippines To Sell PHP 9.0Bln 364D Bills (PH0000060410)
• Philippines To Sell PHP 8.0Bln 182D Bills (PH0000059552)