JGBS: Richer, PPI Surprises To Upside, BoJ Rinban Operations Due
In Tokyo morning trade, JGB futures are stronger but off session highs, +27 compared to settlement levels.
- PPI printed +2.4% y/y versus +2.0% est and a revised +1.1% prior.
- (MNI) Japan's corporate goods price index rose 2.4% y/y in May, accelerating from April's revised 1.1%, while import price rises also accelerated and posted their fourth straight increase, up 6.9% y/y for the highest level since March 2023 following April's 6.6% gain, data released by the Bank of Japan showed on Wednesday.
- The data indicated that the rise in import prices will slow the pace of waning pass-through caused by the recent weak yen and increase pressure on firms to raise retail prices again.
- Cash JGBs are richer, with yields flat to 2bps lower. The benchmark 10-year yield is 2.4bps lower at 1.003% versus the cycle high of 1.101%.
- BoJ will conduct Rinban Operations covering 1-10-year and 25-year+ JGBs today.
- Swaps are slightly lower. Swap spreads are wider.
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JGBS: Futures Firm With US Tsys, BoJ Buying Ops Soon
JGB futures are a touch higher in early Monday dealings. We were last 144.25, -01 (just below session highs). We finished up last week at 144.18.
- US Tsy futures have ticked slightly higher since the open, but remain comfortably off late highs from last week. This has probably lent some support to JGBs.
- On the data front, we had April money stock figures, with M2 y/y up 2.2% versus 2.5% in March (not a sentiment shifter). Tomorrow, we have the April PPI print.
- In the cash JGB space, we are little changed in yield terms, the 10yr last around 0.91%.
- Back end swap rates continue to trend higher, the 20-30yr tenors up +2bps at this stage.
- Coming up soon we have BoJ bond buying ops.
LNG: Gas Prices Lower On Soft Fundamentals
Natural gas prices were lower across markets on Friday with Europe down 3.2% to EUR 29.87 after a high of EUR 31.59 early in the session. They are now up only 2.6% in May. Goldman Sachs expects prices to trade around EUR 30 over the summer. Even though demand is soft in Europe, the region remains vulnerable to supply disruptions globally and tensions in Russia/Ukraine and the Middle East are being monitored closely.
- Maintenance is in progress in Europe’s main producer Norway and any unplanned extensions will be watched closely. Elevated storage levels reduce the impact of any disruptions.
- US natural gas fell 2.1% to $2.25 but is still up 13.1% this month. It is currently lower at around $2.23. The outlook is for mild weather but also the previous week saw a smaller-than-expected inventory build. Prices are likely to remain pressured as there has been little need for cooling so far this season. The end to pipeline maintenance should ensure solid flows. Production as of Friday was down 1.2% y/y while demand was up 5.4% y/y.
- Asian gas prices also fell around 2% on Friday to be up 2.3% in May. Demand has improved in the region due to increased power demand for cooling.
FOREX: USD/JPY Eyeing 156.00 Test, Aust Business Survey, NZ Inflation Expectations Later
The USD is close to unchanged in the first part of Monday dealing, albeit with a slight upside bias. The BBDXY index was last near 1254.40.
- USD/JPY has firmed towards recent highs, last around 155.90/95. Upside focus may rest on the May 2 high at 156.28 if we can break above the figure level.
- US yields are lower in early dealings, but losses are around 1bps at this stage. US equity futures sit down a touch.
- USD/JPY gains are still outperforming US-JP yield differentials, although these spreads have stabilized somewhat.
- AUD/USD is down a touch near 0.6600, while NZD/USD is around 0.6020.
- Earlier we had the NZ services PMI, which fell to 47.1 from a revised 47.2 reading. NZ food prices rebound to 0.6% m/m, after March's 0.5% fall. Later on, we get NZ 2Q inflation expectations.
- Before that we have the NAB April business survey print in Australia.
