EM ASIA CREDIT: JD.com may acquire Ceconomy

ACGBs (YM flat & XM +0.5) are trading little changed on the day after today’s release of May CPI data. 

• The monthly CPI indicator rose 2.1% y/y in May, 20bps below expectations, while the annual trimmed mean measure fell 40bps to 2.4%.
• The headline CPI result marked the lowest reading since October 2024, while the trimmed mean was at its lowest level since November 2021, potentially reinforcing expectations that inflationary pressures are easing more broadly. While the RBA monitors the monthly read, it prefers the more complete quarterly data.
• The largest contributor to the annual increase was food and non-alcoholic beverages (+2.9%), followed by housing (+2.0%) and alcohol and tobacco (+5.9%).
• Cash US tsys are modestly cheaper in today’s Asia-Pac session after yesterday’s modest gains.
• Cash ACGBs are 1bp richer with the AU-US 10-year yield differential at -16bps.
• The bills strip is modestly stronger, with pricing +1 to +2.
• RBA-dated OIS pricing is slightly softer across meetings today. A 25bp rate cut in July is given a 90% probability, with a cumulative 80bps of easing priced by year-end.

A huge reversal in oil has given the JPY longs some reprieve, but a much improved risk backdrop could continue to see these positions challenged in the crosses after the initial pullback. 

• EUR/JPY - Overnight range 167.92 - 168.70, Asia is trading around 168.25. The pair found some initial demand around 168.00 overnight. The dips have been very well supported recently, after a good move higher though we might see some reversion back to the mean. First support is back towards 167.00 where demand should emerge once more.
• GBP/JPY - Overnight range 196.96 - 197.58, Asia trades around 197.20. Considering the pullback in USD/JPY cross-JPY remains well supported. Look for dips to remain supported in the short-term, first support back towards the 196.00/196.50 area.
• NZD/JPY - Overnight range 86.97 - 87.60, Asia is currently dealing 87.20. NZD/JPY continues to see buyers on dips, a sustained break is needed above 88.00 for the market to gain momentum and turn its focus back to the 90.00 area.
• CNH/JPY - Overnight range 20.1636 - 20.2567 Asia is currently trading around 20.1900. A big reversal from the 20.50/20.60 resistance area. A sustained close above here needed to change the direction of this pair.

Fig 1 : CNH/JPY Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

Gas prices have followed oil sharply lower this week as tensions in the Middle East eased and risks of a supply disruption especially through the Strait of Hormuz dissipated. The Iran-Israel truce negotiated with the US appears to be holding but the coming hours and days will remain crucial to its eventual success.

• European natural gas fell sharply on opening and finished down 13.4% to EUR 35.10, close to the intraday low, on Tuesday. It is now 14.3% lower this week to be up only 2.5% in June.
• Europe remains sensitive to global gas disruptions as it refills ahead of the upcoming winter, thus was particularly worried about recent Middle East developments. It also is vulnerable to a pickup in Asian demand if temperatures rise. With trade very much in focus, Europe is likely to import more US LNG.
• US prices were down 4% to $3.55 to be 7.7% lower this week and 3% higher in June. They are currently up 1% to $3.57. Henry Hub has also been impacted by inventories sitting above the 5-year average and by expectations of lower cooling demand as lower temperatures are forecast for the south.
• There have been power warnings from the US east coast due current hot conditions increasing air conditioning use. It is due to last until later this week.