JAPAN DATA: Exports Dip Y/Y, Trade Surplus With US Narrows
Japan's May trade data was close to expectations, with export growth at -1.7%y/y, versus -3.7% forecast. The April outcome was +2.0%. On the import side, we were -7.7%y/y, against a -5.9% forecast (-2.2% was recorded for April). The trade deficit was -¥637.6bn, close to forecasts but wider than the -¥115.6bn print in April. In seasonally adjusted terms the trade position was -¥305.5bn, close to forecasts and the April outcome.
- Exports to the US fell by 11.1% y/y and were down to China by 8.8%, but up 4.9% to the EU. In volume terms exports fell 1.4%y/y to the US, and were down 7.9%y/y to China.
- The trade surplus with the US continued to narrow, now at ¥451.7bn from ¥1012.01bn at the end of last year.
- The faltering export growth backdrop for Japan is in line with other parts of the region (ex Taiwan) that have seen slowing growth in the wake of higher US tariffs. Still, the US side is likely to take comfort from the declining trade surplus. Car exports to the US fell 24.7% in May Bloomberg notes.
- The terms of trade have taken a hit in terms of the recent oil price/energy price rise (the Citi proxy is at multi month lows). If sustained this could weigh on Japan's trade position.
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AUSSIE BONDS: Modestly Cheaper, US Tsys Digest Moody's Downgrade
ACGBs (YM -2.0 & XM -3.0) are slightly weaker as US tsy 10-year futures (TYM5) react in early Asia-Pac dealings to late Friday news that Moody's Ratings downgraded the US credit score.
- Cash US tsys are slightly mixed, with a steepening bias, in today’s Asia-Pac session.
- Bloomberg - "Moody's Ratings downgraded the US credit score to Aa1 from Aaa due to an increase in government debt and a higher interest burden."
- "The move follows downgrades by Fitch Ratings and S&P Global Ratings, with Moody's citing a decline in fiscal metrics that can no longer be counterbalanced by the US' economic and financial strengths."
- Cash ACGBs are 1-3bps cheaper with the AU-US 10-year yield differential at +1bp.
- The bills strip is flat to -2.
- The local calendar will be empty until tomorrow’s RBA Policy Decision. A 25bp cut to 3.85% is widely expected.
- RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut in May is given a 94% probability, with a cumulative 77bps of easing priced by year-end (based on an effective cash rate of 4.09%).
- This week, the AOFM plans to sell A$1200mn of the 4.25% 21 December 2035 bond on Wednesday and A$800mn of the 2.75% 21 November 2028 bond on Friday.
US TSYS: Cash Open
TYM5 is trading 110-05, down 0-05 from its close.
- The US 2-year yield opens around 3.974%, down 0.03 from its close.
- The US 10-year yield opens around 4.477%, unchanged from its close.
- (Bloomberg) -- The US Treasury has $82 billion of extraordinary measures left, in addition to its cash pile, to help keep paying the government’s bills, the department said, citing data as of May 14.
- Treasury Secretary Scott Bessent told lawmakers last week that the US is likely to exhaust its borrowing authority in August if the federal debt ceiling isn’t raised or suspended by then
- The 10-year Yield looks likely to test the 4.5% resistance area again on the downgrade. A sustained break above this level could see another round of selling targeting the 4.75% area. Support towards 4.35% held Friday night, dips back towards here should see supply emerge once more.
- Data/Events: Atlanta Fed President Raphael Bostic , Dallas Fed President Lorie Logan and Fed Vice Chair Philip Jefferson speak at Amelia Island conference. New York Fed President John Williams speaks at an event organized by the Mortgage Bankers Association.
LNG: Inventory Developments Drive Gas Prices
Natural gas prices were weaker on Friday but Europe finished the week higher while the US was lower as the two regions are in different inventory positions. Europe remains vulnerable to unscheduled outages and supply disruptions as it refills storage. Gas fell 0.5% to EUR 35.13 to be up 1.5% last week and 8.7% in May. Negotiations on trade, Ukraine and Iran could also drive prices.
- Morgan Stanley estimates that Europe will need to import 45% more LNG this year to reach storage rates of around 80%. Relatively low demand from Asia so far this season has helped it to increase LNG cargoes more than usual. However, there was unplanned maintenance at Norway’s Troll and Aasta Hansteen fields last Thursday.
- US gas fell 1.1% to $3.33 on Friday to be down 12.4% on the week but little changed in May. The down move was driven by a higher-than-average inventory build as well as forecasts for milder weather in parts of the US at the end of the month, reducing the chance of a pickup in cooling demand.
- US lower-48 gas production rose 4.5% y/y on Friday while demand fell 2% y/y. The EIA reported a 100 bcf rise in inventories in the previous week, above the 5-year average of 83bcf. The total is now 2.6% above the 5-year average, according to Bloomberg.
- In April China’s imports of LNG in volume terms fell 24.8% y/y after -24.5%, while pipeline natural gas rose 23.6% y/ up from 2.0% as it increases purchases from Russia.
