AUSSIE BONDS: Slightly Stronger, US Tsys Modestly Richer, Focus On Friday's NFP

TYU6 is dealing at 108-14+, +0-01 from closing levels in today’s Asia-Pac session.

• Cash bonds 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. 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.
• At the same time, President Trump won’t accept tolls through the waterway. While crude fell sharply on Monday, the situation in the Middle East remains fragile and highly uncertain and so energy markets are likely to remain volatile.
• July's ISM Manufacturing report showed strong broad-based improvement, with the headline PMI rising to a 50-month high 55.6 from 53.3 prior (and vs 53.9 consensus). This corroborates other indicators of strong factory activity in the month and while well above-consensus, this had been telegraphed by a 51-month high ISM PMI equivalent in regional Feds' manufacturing surveys for the month.
• No surprises from the final US manufacturing PMI which was only revised a tenth higher to leave it unchanged from June at 53.9.

Bloomberg Finance LP

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.