JGBS: Futures Finish Up From Lows, But Downside Risks Persist

In post-Tokyo trade on Friday, JGB futures closed slightly stronger, +9 compared to settlement levels, after US tsys finished the week little changed. 

• On Friday, there was mixed US data: durable orders were slightly better than expected, while capital goods orders were lower than expected/ prior was revised upward.
• Daily Chartbook on X: "Japan won't need to purchase as many Treasuries and other foreign bonds and stocks over the longer term after its trade deal with the US." @LondonSW via ZeroHedge.
• Bloomberg - "Japanese Prime Minister Shigeru Ishiba signalled he intends to stay in office: https://blinks.bloomberg.com/news/stories/T01KGGGQ1YPU despite a growing number of calls within the ruling party for him to step down after an election setback last week. "I intend to devote myself to the people and the future of the country," Ishiba said in an interview with national broadcaster NHK."
• Bloomberg - Bank of Japan officials see the possibility of mulling another interest rate hike this year after the US and Japan struck a trade deal this week, according to people familiar with the matter."
• Today, the local calendar will be empty ahead of 2-year supply on Tuesday.

Oil prices were down over a percent on Friday as fears over upcoming trade negotiations added to pressures from ample supply. However, over the weekend the EU reached an agreement with the US for flat tariffs of 15% except steel & aluminium which still face 50% and aircraft & parts that will have no duty. The EU agreed to buy $750bn of US energy over the remainder of President Trump’s term and invest $600bn in the US. Oil’s reaction to the news has so far been muted. 

• WTI fell 1.5% to $65.07/bbl after touching $65.00. The benchmark was down 1.5% on the week but still up 1.9% in July. It has started today slightly higher at $65.18 following news of the EU-US trade deal. Talks with China to extend current tariffs begin Monday.
• The sharp decline since June 23 highlights scope for an extension lower with the 50-day EMA at $64.75 a key support level to watch.
• Brent was down 1.1% to $68.39/bbl just off the low of $68.31. It was 1.3% lower on the week but is still 2.5% higher this month. A bearish theme continues and the rise in July appears corrective. Initial support is at $65.92, 30 June low. Initial resistance is at $72.66.
• In terms of supply, Baker Hughes reported a larger-than-expected drop in US oil rigs of 7 to 415.
• Also, OPEC is scheduled to meet on August 3 to decided output levels. The group has increased output by more than 400kbd consistently over each of the last few meetings. The US decision to allow Chevron to resume production in OPEC-member Venezuela is unlikely to materially impact the outcome of the group’s meeting.