JGBS: Futures Stronger Overnight, Japan Trade Deal By July 9 Unlikely

Oil prices were lower on Friday due to reports that OPEC could increase output by even more than it had previously. Benchmarks finished May higher. They have started the week stronger on relief that the OPEC output increase for July is in line with previous moves. Also there is a push by some US lawmakers to penalise imports from countries buying Russian oil and uranium, which would target China and India.

• WTI fell 0.25% to $60.79/bbl to be up 5.5% in May. It rose to a high of $61.72 before declining to $59.74, but remaining above the bear trigger at $54.33. The break below $60 was only brief though. It has started today up 2.0% to around $62.00/bbl. Initial resistance is at $62.54, 50-day EMA.
• Brent underperformed falling 1.2% to $62.61/bbl to finish the month 3.2% higher. The benchmark reached $64.09 before shifting down to $62.09. It has started the week 1.6% higher at $63.81. It continues to struggle to reach initial resistance at $65.41, 50-day EMA. The medium-term trend remains bearish with the bear trigger at $57.78.
• OPEC agreed on Saturday to increase output 411kbd from July, the third increase of this size which is believed to be a message to overproducers. Apparently Russia, Oman and Algeria wanted a pause in output normalisation, according to Bloomberg. The next meeting is on July 6.
• Ukraine attacked Russian airbases with drones destroying 40 bomber planes, according to the BBC. It appears in response to larger Russian attacks on Ukraine including Kyiv. Talks are due to take place this week.
• The International Atomic Energy Agency reported that Iran has enriched a record amount of uranium at just below weapons grade. Negotiations with the US are ongoing.

• China's official PMIs released over the weekend showed the pace of contraction in manufacturing to be slowing even with a five day holiday in the reporting period.
• The official PMI Manufacturing for May was +49.5, up from +49.0 in April.  
• The official PMI Non-Manufacturing moderated to +50.3 from +50.4
• Output rose to +50.7 (from +49.8) and new orders were better at +49.8 (from +49.2) as was employment at +48.1 (from +47.9).  
• The official PMIs are the first official data for the month and provide a guide as to the direction and general state of the economy.  
• This data is the first guidance as to how the economy reacted post the agreed truce in the trade war and on face value its seems tentative improvement.  
• For a more broad based assessment we look ahead to tomorrow's CAIXIN PMIs which show the activity for the private sector where forecasts are for a modest expansion relative to the month prior.  

In post-Tokyo trade on Friday, JGB futures closed stronger, +11 compared to settlement levels, after US tsys twist steepened into the monthly close on Friday.

• US yields fell across the curve in early New York trade on Friday after President Trump posted on social media that China violated its agreement with the US, triggering a risk-off move.
• Yields bounced back after PCE data came largely in line, though April's trade deficit was much smaller than expected, later leading the Atlanta Fed to up its Q2 GDP growth nowcast to close to 4%.
• US tsys finished with the 2-Yr yield down 4bps at 3.90%, 10-Yr down 2bps at 4.40%, and 30-Yr up 1bp at 4.93%.
• Monday's US calendar sees ISM Manufacturing data and an appearance by Fed Chair Powell, with the June employment report looming at the end of next week.
• "Japan's top trade negotiator Ryosei Akazawa said the latest round of discussions with the Trump administration on tariffs have them on track toward a deal as early as next month, while refraining from citing specifics."(BBG)
• Today, the local calendar will see Capital Spending, Company Profits/ Sales and Jibun Bank PMI Mfg.