US TSYS: Slightly Richer After Yesterday's Subdued Summer Session

NZGBs are 2bps richer after US tsys finished 5-6bps richer after extending yield lows ahead of the NY open amid brief optimism an agreement over Hormuz Strait passage could be near. 

• Oil prices are off their Monday lows but still down sharply after the US paused planned strikes on Iran to allow negotiations to take place.
• July's ISM Manufacturing report showed strong improvement, with the headline PMI rising to a 50-month high 55.6 from 53.3 prior (and vs 53.9 consensus). 
• Auckland July Average House Price falls 0.5% m/m.
• New Zealand Q2 Labour Market Report: Q2 labour market data are released 5 August and Q2 filled jobs suggest that employment may record the fourth consecutive quarter of growth but it's still likely to be muted. This is consistent with ongoing excess capacity in NZ which is helping to limit firms' pricing power and workers' wage demands. Therefore, Q2 wage growth is likely to remain contained.
• The 2-year swap rate is at 3.69%. We have flagged previously that 4.0% looked to be a target given the expected peak OCR. That target remains achievable notwithstanding the paring in the expected peak from 3.65% to 3.52%.
• RBNZ-dated OIS pricing is little changed across meetings. 24bps of tightening is priced for September, while February 2027 assigns 75bps.

Bloomberg Finance LP

European gas finished down 2% to EUR 57.885 off the intraday low of EUR 55.35 reached during late Asian trading. It is hoping that a resolution to the Strait of Hormuz problem will increase global LNG supplies but the heating season is approaching and storage is only 57.1% full, lowest since data began in 2009, according to Bloomberg. The need to refill risks prices rising substantially from here with Goldman’s warning they could reach EUR 100 (Bloomberg). 

• Inventories are very low in the Netherlands, Belgium, Germany, Slovakia, Latvia and Bulgaria. European storage injections were down 21% y/y in July, according to Bloomberg.
• Iran’s IRIB news agency reported that Iran will only allow its route through Hormuz which if it stands by this position is going to make finding a compromise difficult. Iran is also only talking with Oman. At the same time, President Trump won’t accept tolls through the waterway.
• Both US and Iranian officials have denied there are direct talks, therefore negotiations are likely still taking place but through mediators.
• US gas rose 1.0% to $2.774, and is currently around this level, but traded in a narrow range of $2.71/2.81 through Monday given forecasts for temperatures to continue around average. Prices found support from increased LNG demand. 

The USD/JPY range overnight was 156.26-157.22, Asia is currently trading around 157.40. The pair is looking to bounce off its support back toward the 155 area. Co-ordinated intervention with the US is not something you see very often so it again adds more two-way risk to this trade and a market that was very short Yen can’t just shrug off an 800-900 point retracement without absorbing some pain. The issue is by not touching rates and there are some intimating this intervention could push the hike out further. The carry trade though having to bear some punishment in the short-term will continue to appeal to those looking to add risk and get paid for it. On the day, the strong support in the 155-157 area held at the first time of asking, through here and the 149-152 support comes back into play. Everyone will be watching to see if this support can hold and build a base from which to move higher again. Initial resistance is back toward 159-161 and I suspect we see seller re-emerge around there initially.             

• “The BOJ may skip a rate hike in September after the action, SocGen strategists said.” - BBG
• “Japan’s LDP is set to push ahead with plans to suspend the sales tax on food items, despite opposition from a former PM and other officials over how the tax cut would be funded.” - BBG
• CFTC Data up to 28/07/2026 shows Asset Managers adding back to their newly built short Yen position, -80 077(Last -77 443). The Leveraged community did the same adding to their own large core shorts, –124 575(Last -114 030).
• Options : Close significant option expiries for NY cut, based on DTCC data: 163.00($755m), 163.50($1.42b), 164.00($1.18b). Upcoming Close Strikes : 155.00($1.79b Aug 6), 162.00($2.92b Aug 6), 162.50($2.1b Aug 6) - BBG.
• The USD/JPY Average True Range(ATR) for the last 10 Trading days: 171 Points
• Data/Event : Monetary Base, Japan to sell 10-year bonds 

Fig 1 : JPY CFTC Data

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

Fig 2 : USD/JPY Spot Daily Chart

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