OIL: Crude Up Today On News US Will Aid Ukrainian Strikes On Russian Energy

Aussie bond futures are lower in early Tuesday trade. 3yr futures (YM) were last at 96.55, down 1.5bps. Late August lows (96.535) could be in focus if we see more downside. For 10yr futures (XM), we are seeing some underperformance, we were last 95.63, off 2.5bps. Recent lows were at 95.6050. These moves are mirroring US Tsy futures weakness, which is being led by the back end. 

• US Treasury futures dealt mildly cheaper at the early close for Labor Day on Monday, after an unsurprisingly quiet session. Sell-off cues were taken from some mild weakness in EGBs on supply grounds. We have re-opened this morning with a negative bias.
• In the cash ACGB space, yields are higher across the benchmarks, with the back end leading slightly. The 3yr was last above 3.43%, while the 10yr is approaching 4.34%, up a little over 2bps.
• The data front today sees the Q2 current account which has been in deficit since Q2 2023. It is forecast to widen to $16.0bn after Q1’s -$14.7bn. Net exports detracted 0.1pp from Q1 GDP growth, in line with Q4, and are forecast to contribute 0.1pp in Q2. Public demand figures are also out today for Q2.
• Note as well there is a 2034 bond sale today. 

Crude unwound Friday’s losses on Monday in light trading as the US was closed. With Russian strikes on Ukrainian cities continuing, tighter rather than easier sanctions seem more likely. In addition, Ukraine continues to target Russian energy infrastructure. India also remained defiant in its purchases of Russian crude saying they help keep global oil prices down.

• WTI rose 0.9% to $64.61/bbl following a high of $64.88, holding well below initial resistance at $66.56. It is currently around $64.55. Monday’s recovery appears corrective with the bear cycle in place. The bear trigger is at $61.29.
• Brent was up 1% to $68.16/bbl after reaching $68.36. With the downtrend remaining, the level to watch is $64.50, 30 June low. Initial resistance is at $69.06.
• With excess supply worries generally driving the market, OPEC+’s meeting on September 7 to decide its October production target will be watched closely. There are still 1.65mbd of previous voluntary output cuts that could be unwound.

The overnight range was 146.79-147.31, Asia is currently trading around 147.15. USD/JPY trades sideways holding just above its recent support. The demand  towards 146.00 has been pretty solid all of July and August, keeping us for the most part in a 146.00-149.00 range. CFTC data for last week shows leveraged accounts have maintained their recent JPY shorts and will be hoping this support continues to be solid. A sustained break below 145.00/146.00 is needed to to turn the focus back to the year's lows towards 140.00.

• (Bloomberg) - “JGB Traders Applying Maximum Attention in Auction Week. JGB futures are soft to start the week, with downside extension likely as traders pre-hedge 10 and 30-year auctions due this week. The delay to BOJ interest rate hikes is compounding negative sentiment as it allows stagflation themes to fester for longer."
• Kyodo News Via BBG - “Former BOJ committee member urges SMEs to "seek scale and value" amid delayed wage hikes. Toyoaki Nakamura (73), who served as a member of the Bank of Japan's Board of Governors, said that wage increases at small and medium-sized enterprises have not kept up with rising prices, and that "productivity must be increased through investment." He called for the expansion of scale and the pursuit of added value in products and services.”
• Options : Close significant option expiries for NY cut, based on DTCC data: 148.30($334m).Upcoming Close Strikes : 146.50($1.39b Sept 3), 146.00($2.16b Sept 5)  - BBG.
• CFTC data shows last week asset managers again added to their JPY longs after a consistent period of reduction +76761( Last +71379), leveraged funds though again used the dip to add slightly to their newly built short JPY position -52275(Last -50848). One of them is going to be wrong.
• Data/Event : Monetary Mase

Fig 1 : USD/JPY Spot Daily Chart

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