LNG: Global Developments Remain Important For European Market
May-08 00:36
European natural gas reached a high of EUR 35.50 boosted by news of the start of US-China trade talks this week but then trended down to finish 1.5% lower at EUR 34.21 but still up almost 6% this month. The recovery in US LNG exports from Freeport and a forecast rise in European temperatures by the weekend weighed on prices
- While US-China talks are likely to focus on de-escalation at this stage and there are fears they may not end positively this weekend, any progress should support fuel prices as markets have been very concerned about the impact of protectionism on global energy demand.
- US gas prices rose 4.7% to $3.63 on Wednesday to be up 9% in May as lower prices attracted buyers into the market (April saw a 21.2% fall). Flows to the Freeport LNG facility are due to rise after a power outage allowing exports to increase. Two of three trains are back online according to power data, according to Bloomberg.
- Europe is reliant on LNG imports from the US since it cut pipeline flows from Russia and now with the plan to end all Russian fuel imports by end-2027 and efforts to reduce a 20% US tariff, reliance is likely to increase. A new pipeline between Russia and China would also ease European access to other supplies.
- Bloomberg consensus is forecasting a 103bcf increase in US gas inventories for last week, above the 5-year seasonal average.
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AUSSIE BONDS: Dramatically Cheaper After US Tsys Reverse Asia-Pac Rally
Apr-08 00:04
ACGBs (YM -15.0 & XM -19.0) are significantly cheaper after a wild ride in the markets as the markets continued to try to come to grips with tariffs and any signs of negotiations.
- A rumour that the reciprocal tariffs would be paused, though quickly denied by President Trump, was the initial source of volatility.
- Meanwhile, US tsys finished with deep losses. The 10-year yield was 18bps higher at 4.18%, while the 2-year rose 11bps to 3.76%.
- Cash ACGBs are 17-21bps cheaper with the AU-US 10-year yield differential at +13bps.
- Swap rates are 14-18bps higher.
- The bills strip has cheapened dramatically, with pricing -10 to -17.
- RBA-dated OIS pricing is 7-15bps firmer across meetings today. A 50bp rate cut in May is given a 33% probability, with a cumulative 107bps of easing priced by year-end (based on an effective cash rate of 4.09%).
- Today, the local calendar will see Consumer and Business Confidence data.
- The AOFM plans to sell A$400mn of the 4.25% 21 June 2034 bond today along with A$1000mn of the 2.75% 21 November 2028 bond on Wednesday and A$600mn of the 2.75% 21 June 2035 bond on Friday.
JGBS: Futures Sharply Weaker With US Tsys
Apr-07 23:48
In post-Tokyo trade, JGB futures are sharply weaker, -128 compared to settlement levels, after US tsys finished much weaker yesterday.
- Markets experienced significant turbulence overnight, with extreme volatility driven by poor liquidity conditions. The situation was further exacerbated by a flurry of social media activity from President Trump, who threatened an additional 50% tariff on Chinese imports.
- Markets appear to be starting to anticipate the easing impact of last week's sweeping tariff announcement as more countries are looking to negotiate or at least respond to the Trump administration's trade policy.
- The sharp risk-off tone in yesterday's Asia-Pacific session buoyed US tsys. The 10Y yield tapped a 3.8693% low as stocks gapped lower on the open before bouncing to 4.2122% during NY morning trade. Focus squarely on US tariffs and foreign countries' responses.
- Today, the local calendar will see BoP Current Account and Trade Balance data alongside 30-year supply.
OIL: Crude Off Lows, Positive Start To Today
Apr-07 23:38
Oil prices finished Monday over 1.5% lower but off the day’s trough, as fears grow that higher-than-expected US tariffs could cause a recession there and a major slowdown in global growth. Prices have started today higher helped by positive US equity futures on imminent tariff negotiations.
- They spiked early in the US session on an incorrect report that the implementation of US tariffs would be delayed 90 days. The move was brief as the news was soon refuted.
- Crude is now almost 15% lower this month, which could be disinflationary while the inflation outlook in a trade war remains highly uncertain.
- WTI finished down 1.7% to $60.96/bbl after reaching $63.90 and is now -14.7% this month. It fell to $58.95 during Monday’s APAC session. It has started today up 1.0% to $61.33. The benchmark is in oversold territory but there is scope for the bearish trend to continue. Initial support is at $59.39 with resistance at $64.85.
- Brent fell 1.9% to $64.36 after spiking to $67.43 following a low of $62.51 earlier. It is now down 13.9% in April, which has cancelled the bullish theme. Initial support is at $63.01 and resistance at $67.95, 5 March low.
- There have been downward revisions to oil price forecasts with Goldman Sachs revising Brent down $4 to $62/bbl by December 2025 and Morgan Stanley by $5 to $65 for Q2 with expected demand growth now 0.5mbd lower by H2 2025. There was record trading of Brent put options on Friday, according to Bloomberg, signalling that the market is preparing for a further sell off.
- China retaliated with a 34% tariff on imports from the US and US President Trump threatened to respond with another 50% on top of the current 54%, which added to market jitters.
- There are to be “direct” negotiations at a “very high level” between the US and Iran on Saturday to discuss an agreement on its nuclear programme. Trump warned that it would be “a very bad day for Iran” if they failed to agree. Developments in this space could cause more volatility in energy markets.
