JGBS: Futures Tick Up With Global Moves, Tokyo CPI In Line

European natural gas rose 4% to EUR 34.20 on Tuesday to be up 5.2% this week and 4% this month. It has risen sharply this week following US President Trump’s announcement that Russia now has 10 days to stop hostilities in Ukraine. A failure to do so, which is clearly possible, would result in high tariffs including against those who buy its fossil fuels, which would have significant implications for global supplies. 

• Polymarket reported an increase in the odds of increased US sanctions on Russia by September 15 to 70%. The market reaction to the shift in the deadline for a truce is in line with this data.
• Former Russian President Medvedev said that Trump’s “ultimatums” were a “step towards war”, per Russian state media. The Kremlin was clear that it is going to ignore the deadline.
• Europe has imported more than average LNG recently to refill storage ahead of winter. This has been helped by a mild Asian summer but it is about to turn hotter, which could increase LNG demand for cooling. Parts of Europe are also forecast to see warmer weather in August.
• Inspired Plc observes that the US-EU trade deal is unlikely to drive significantly higher EU LNG imports from the US, as already around 80% of US LNG exports go to the EU (Bloomberg).
• US gas rose 3.2% to $3.165 to be up 0.2% this week but still down 9.3% in July. Buyers took advantage of the recent drop in prices driven by forecasts for a mild start to August and ample supply. It is down 13.5% from the 18 July high of $3.657. 

In post-Tokyo trade, JGB futures closed stronger, +14 compared to settlement levels, after US tsy bulls ran with supportive data, solid auction results, and technical factors to post strong gains on the day.

• The combination of weaker-than-expected JOLTS, cooler inflation, and a good 7-year auction added to already growing bullish momentum.
• The 7Y note auction stopped through at 4.092% high yield vs. WI of 4.120%; bid-to-cover 2.79x from 2.46x prior.
• Focus now turns to today’s FOMC policy decision.
• MNI JAPAN: LDP Confirms General Assembly That Could Decide PM Ishiba's Fate. The governing Liberal Democratic Party (LDP) confirmed on 29 July that its executive committee will call a General Assembly of LDP members of the National Diet 'in the near future'. This could prove pivotal for the tenure of PM Shigeru Ishiba following the disastrous performance of the LDP in the 20 July House of Councillors election.
• Today, the local calendar will be empty ahead of the BoJ Policy Decision tomorrow.

ACGBs (YM +2.5 & XM +3.5) are stronger after US tsys finished richer and near session bests ahead of today’s FOMC decision.

• US tsys rallied after lower-than-expected JOLTS openings, quits level lower (prior down-revised), and layoffs broadly lower than expected.
• A strong 7Y note auction helped rates extend gains after the $44B note sale stopped through again: 4.092% high yield vs. WI of 4.120%; bid-to-cover 2.79x from 2.46x prior.
• Today will see Q2 CPI data. It is expected to show the underlying trimmed mean measure making further progress towards the band midpoint of 2.5%. Bloomberg consensus is forecasting a 0.7% q/q rise, bringing the annual rate to 2.7% after 0.7% & 2.9% in Q1. This is slightly higher than the RBA's May Q2 forecast of 2.6%. Services developments will also be monitored. The RBA is expected to cut rates 25bp on August 12.
• Cash ACGBs are 2-3bps richer with the AU-US 10-year yield differential at -3bps.
• The bills strip is slightly stronger, with pricing flat to +2.
• RBA-dated OIS pricing is softer across meetings today. A 25bp rate cut in August is given a 90% probability, with a cumulative 61bps of easing priced by year-end.