LNG: Soft Demand Is Driving Prices Lower Again
Natural gas peaked on Friday and has trended lower this week to be up only around 2% in June. European prices fell 2.3% to EUR 34.78 on Tuesday off the intraday low of EUR 34.44 helped by continued weak demand from Asia due to a mild summer and softer industrial demand driven by increased global trade uncertainty. This development is helping Europe to source cargoes to inject into storage ahead of next winter. However, warmer weather in Asia and Europe may boost global demand again.
- BloombergNEF showed European LNG imports rose to a 10-week high.
- Markets have worried that increased trade protectionism would reduce global energy demand. US-China trade talks have taken place this week and the Geneva Consensus was agreed to but it is now up to both presidents to agree to its implementation which could also allow further talks to take place. The focus had been on easing export controls.
- China has been shifting away from LNG imports, especially from the US, by increasing pipeline flows from Russia and its own output.
- The EU is looking to extend sanctions on Russia including a ban on transactions with its Nord Stream pipelines as its war in Ukraine continues. There had been hope that a ceasefire may have enabled sanctions to be eased but with Russian drone attacks on Ukrainian cities escalating, the opposite is now looking likely.
- US gas fell 3.1% to $3.52 to be up 2.2% this month as supplies remain ample with elevated storage. Spring to date has been mild minimising cooling demand. Summer officially begins on June 20. It peaked at $3.82 on Friday.
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JAPAN DATA: Trade & Current A/C Close To Forecasts, Near Cycle Highs
Japan's March trade balance and current account figures were close to market expectations. The trade balance printing at ¥516.5bn, versus ¥547.7bn forecast. The Feb balance was ¥712.9bn. In seasonally adjusted terms, the current account was ¥2723.1bn, slightly above forecasts, while in unadjusted terms we printed, ¥3678.1bn, slightly below market expectations.
- The trade balance sits just off recent cycle highs, presenting less of a headwind to yen, all else equal. This is also consistent with improvement in the Citi Japan terms of trade proxy, although this measure is still in negative territory.
- it's a similar backdrop in terms of the current account trend, although we have also seen improvement in the income balance in the past 6 months, which along with the trade side, has aided the current account balance.
US TSYS: Cash Open
TYM5 is trading 110-17, down 0-09 from its close.
- The US 2-year yield opens around 3.924%, up 0.03 from its close.
- The US 10-year yield opens around 4.408%, up 0.03 from its close
- Yields have all moved higher this morning as risk bounces on US-China officials citing 'substantial progress' made from weekend trade talks held in Switzerland.
- Traders continue to pare back expectations of the Fed easing this year and the next.
- “Treasury Secretary Scott Bessent told US lawmakers that the department's ability to use special accounting maneuvers to stay within the federal debt limit could be exhausted in August.”(BBG)
- “Bessent urged Congress to increase or suspend the debt limit by mid-July to protect the full faith and credit of the United States.”(BBG)
- The 10-year Yield range seems to be 4.10% - 4.5%, price has bounced nicely off the 4.25/30 support, target back towards the top end of the range 4.45/50%.
- Data: US CPI Tomorrow
AUSSIE BONDS: Cheaper With US Tsys, Focus On US-CH Trade Deal
ACGBs (YM -3.0 & XM -4.0) are cheaper with US tsy 10-year futures.
- TYM5 has reopened at 110-18, down 0-08 from closing levels in today's Asia-Pac session on the back of US-China officials citing 'substantial progress' made from weekend trade talks held in Switzerland. US Treasury Secretary Bessent said there had been ‘substantial progress’ in the two days of talks with China and that further details would be shared today.
- Multiple Fed speakers commented on the economy after exiting the policy blackout on Friday.
- It will be a slow start to the week for US data, with the main focus on Tuesday's US CPI inflation data for April and Retail Sales next Thursday.
- Cash ACGBs are 3bps cheaper with the AU-US 10-year yield differential at -6bps.
- The bills strip is cheaper with pricing -2 to -3 across contracts.
- RBA-dated OIS pricing is slightly firmer across meetings today. A 50bp rate cut in May is given a 2% probability, with a cumulative 95bps of easing priced by year-end (based on an effective cash rate of 4.09%).
- Today, the local calendar will be empty.
- This week, the AOFM plans to sell A$1200mn of the 3.50% 21 December 2034 bond on Wednesday and A$800mn of the 2.50% 21 May 2030 bond on Friday.
