LNG: European Gas Off Low After Israel’s Strike In Qatar

Natural gas was lower on Friday and has started August on a weak note. European prices fell 2.3% to EUR 32.20 to be down 8.7% this month. It reached a high of EUR 33.44 before falling to EUR 32.11. Steady imports and refilling ahead of winter have helped to keep a lid on prices and with Presidents Trump and Putin due to meet in Alaska on Friday the risk premium is being reduced. With Ukraine refusing to cede territory to Russia though, a long-term peace that would allow the easing of sanctions is a very long way off. 

• European prices are likely to remain sensitive to changes in supply/demand conditions as inventory building continues. France is expected to increase its gas usage given higher cooling demand and the planned reduction in nuclear power given the current heat wave, which should support gas prices. Lower wind-power generation may also drive higher gas consumption in Germany and the UK.
• US gas fell 2.3% to $2.996 after a low of $2.96 with the key $3.00 level breached again. It is now down 3.5% in August. Supply remains ample with production close to all-time highs and inventories 5.9% above the 5-year average, according to BOK Financial Securities, as the cooling season approaches its end. Thus US prices are likely to remain low for now.
• The weather is expected to be cooler around mid-August for the west and east coasts of the US but temperatures are forecast to remain above average for the eastern two-thirds of the country into the third week of August, according to Vaisala.
• Lower-48 US gas production rose 6.3% y/y, while demand fell 1.2% y/y. Flows to LNG export facilities were down 1.2% w/w. Baker Hughes US gas rig count fell one last week after rising the previous two weeks.

ACGBs (YM -1.0 & XM -2.0) are slightly weaker after US tsys finished moderately cheaper on Friday.

• The focus of the week will be on Tuesday’s RBA decision, with it widely expected to cut rates 25bp to 3.6%. There are also a number of key data releases too. Q2 wages print on Wednesday and July jobs data Thursday.
• The RBA announcement at 1430 AEST will include how the Monetary Board voted and an update of staff projections. Governor Bullock will hold her usual press conference at 1530 AEST.
• Q2 wages on Wednesday are forecast to moderate slightly rising 0.8% q/q & 3.3% y/y after Q1’s 0.9% q/q & 3.4% y/y. July labour market data print on Thursday and will be watched closely for signs of further deterioration.
• Cash ACGBs are 1-2bps cheaper with the AU-US 10-year yield differential at -2bps.
• The bills strip is flat to -2 across contracts.
• RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut tomorrow is given a 97% probability, with a cumulative 61bps of easing priced by year-end.
• Today, the local calendar will be empty.
• Next week, the AOFM plans to sell A$1200mn of the 4.25% 21 December 2035 bond on Wednesday and A$1000mn of the 2.75% 2 1 November 2029 bond on Friday.

With the next RBNZ meeting approaching (August 20), this week contains a number of high frequency releases that the MPC monitors and should give a sense for how the economy began Q3. 

• July card spending is out Wednesday and while it is off its lows, growth has remained soft. There could be some payback in the month following the 0.5% m/m rise in June.
• On Friday, July monthly price series are released including food, travel, electricity and rents. Food and power price inflation have been trending higher while petrol and rents have been moderating.
• The July BNZ manufacturing PMI also prints on Friday. It returned to contractionary territory in May after five months signalling growth in the sector. In June, the pace of decline moderated with the index at 48.8 after 47.4.
• Net inward migration has moderated in line with increasing difficulty finding work. June is released on Friday.