BOJ: Rinban Purchases

April data covering 45% of the CPI were released today with food prices +0.6% m/m driven by groceries, meat and takeaway. Rents rose 0.5% m/m to be +4.6% y/y but there are signs of “some easing in new rental agreements”. Petrol prices rose 1.8% m/m and there were “some big seasonal swings in the volatile travel categories”. Westpac sees today’s data indicating that there’s an upside risk to the RBNZ’s 0.6% q/q forecast for Q2 CPI, “on balance”.

• “Looking through the month-to-month volatility, while lower import prices have pulled down inflation, today’s data highlights the continued firmness in domestic prices such as rents. As a result, we continue to expect a gradual easing in overall inflation. Inflation is only likely to drop below 3% late this year, and a return to the 2% target is still a way off.”
• “On its own, today’s update probably won’t have been a big surprise for the RBNZ. However, it follows the March quarter result that was stronger than they had expected. Overall, the RBNZ is looking at a firmer inflation outlook than they had assumed when they last published forecasts in February.”

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.

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.