LNG: European Gas Lower On Hopes Of Flexible Refilling & Ukraine Peace
European natural gas prices were lower driven by the possibility of more flexible refilling regulations and optimism that an agreement can be found to end the war in Ukraine, which may allow a return of pipeline flows through Ukraine which accounted for around 5% of European consumption before they stopped on January 1. They fell 2.9% to EUR 56.08 on Wednesday after a high of EUR 59.39 on Tuesday but they are still up 5.3% this month.
- There appears to be an understanding for US President Trump and Russian President Putin to talk which may take place in Saudi Arabia.
- European refilling ahead of next winter has been an ongoing concern as futures prices for spring/summer months exceed those for the 2025/2026 winter. As a result talks are reportedly taking place to make the EU’s storage targets and deadlines more flexible, according to Bloomberg. Currently the rule is for storage to be at 90% by November 1.
- US gas rose 0.7% on Wednesday to $3.54, the third straight daily increase, to be up 16.4% in February. It is currently higher at $3.62. Forecasts for colder weather into the second half of the month continue to drive US prices higher.
- Bloomberg consensus expects that there was a 91 bcf fall in US gas inventories last week, less than the 5-year average for early February.
- Japan saw a sharp LNG drawdown last week of 10.8% w/w as heating demand rose, according to ANZ.
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CROSS ASSET: Risk Appetite Up Tariff Headlines, USD Index Near Pre NFP Levels
The risk mood is supportive in early Tuesday dealings, albeit away from best levels for some markets. The catalyst is an earlier BBG story that hit near the NY/Asia cross over around a potential for a gradual tariff hike plan being considered/studied by Trump's economic advisors (see this link). The plan has reportedly not been presented to incoming President Trump yet, but it is showing the sensitivity of markets to tariff related headlines.
- US equity futures have opened up firmer, after a mixed cash session in Monday US trade. Eminis are around 0.30/35% higher, while Nasdaq futures are up by over 0.50%.
- In the FX space, the USD BBDXY index opened up 0.40% weaker, but the index is up from lows, last near 1315.3. This puts us back close to pre US NFP levels from last Friday. Gains are fairly uniform against the USD, although higher beta plays are outperforming at the margin. NZD/USD is up 0.40% to 0.5605/10, while AUD/USD is up 0.30%, last near 0.6195. GBP and EUR are up 0.20-0.25%, while yen has gained less than 0.10%.
- USD/CNH is back under 7.3400, up around 0.10% in CNH terms. MXN is 0.20% firmer, with USD/MXN, back near 20.61, with both pairs up from earlier lows.
- US Tsys futures have opened firmer, with long-end contracts outperforming, the 10yr contract is +07 at 107-14+. Cash trading will return shortly, after being closed in Asia on Monday, the 10yr briefly topped 4.80% overnight following a fresh wave of selling in SOFR futures, the 10yr is on track to open around 4.75%.
- Oil is close to unchanged for WTI, while Gold is up a touch, last near $2669.
JGBS: Trading Resumes After Yesterday’s Holiday
In post-Tokyo trade on Friday, JGB futures were sharply weaker following US payrolls, -50 compared to settlement levels. The local market was closed yesterday for a holiday.
- Overnight, it was another weak session for US tsys, albeit less so than Friday. US yields finished flat to 3bps higher across benchmarks. Volumes were decent (TYH5 over 1.5M contracts despite Japan being out on extended holiday) ahead of this week's PPI and CPI inflation data on Tuesday and Wednesday respectively.
- NY Fed consumer inflation expectations saw a mixed month for December, with the 1Y holding steady at 3.0%, the 3Y jumping 40bps to 3.0% and the 5Y falling 20bps to 2.7%. The 3Y measure is its highest since Nov 2023 and came amidst its highest uncertainty since May.
- Wednesday’s US CPI report headlines the weekly calendar, with Bloomberg Consensus currently looking for a 0.2% M/M print for core CPI in what’s a close call with a 0.3% M/M. Indeed, our initial review of 13 unrounded analyst estimates sees these generally more detailed projections centred around 0.25% M/M for core CPI in December.
- Today, the local calendar will see Current Account Balance, Trade Balance, and Bank Lending alongside 5-year supply. BOJ Deputy Governor Himino will also give a speech in Kanagawa at 1030 JT.
ASIA STOCKS: Foreign Investor Dump Asian Semiconductor Stocks
Taiwan recorded its largest outflow since September as TSMC and Hon Hai saw heavy selling. It wasn't much better across the region with South Korea also recording a large outflow.
- South Korea: Recorded outflows of -$619m yesterday, contributing to a 5-day total of -$33m. YTD flows are positive at +$148m. The 5-day average is -$7m, better than the 20-day average of -$68m and the 100-day average of -$141m.
- Taiwan: Experienced significant outflows of -$1.62b yesterday, resulting in a 5-day total of -$3.16b. YTD flows are negative at -$2.21b. The 5-day average is -$632m, worse than the 20-day average of -$155m and the 100-day average of -$123m.
- India: Posted outflows of -$165m Friday, contributing to a 5-day total of -$1.92b. YTD flows are negative at -$2.13b. The 5-day average is -$383m, worse than the 20-day average of -$181m and the 100-day average of -$47m.
- Indonesia: Registered outflows of -$23m yesterday, with the 5-day total at -$97m. YTD flows are negative at -$205m. The 5-day average is -$19m, slightly better than the 20-day average of -$30m, but worse than the 100-day average of +$6m.
- Thailand: Recorded small inflows of +$3m yesterday, resulting in a 5-day total of -$55m. YTD flows are negative at -$59m. The 5-day average is -$11m, worse than the 20-day average of -$8m and the 100-day average of -$9m.
- Malaysia: Posted outflows of -$72m yesterday, contributing to a 5-day total of -$171m. YTD flows are negative at -$206m. The 5-day average is -$34m, worse than the 20-day average of -$24m and the 100-day average of -$14m.
- Philippines: Recorded outflows of -$12m yesterday, resulting in a 5-day total of -$38m. YTD flows are negative at -$37m. The 5-day average is -$8m, worse than the 20-day average of -$5m but equal to the 100-day average of $0m.
Table 1: EM Asia Equity Flows
