ASIA STOCKS: South Korea Inflows Surge On AI/Chip Optimism

Natural gas was slightly lower on Tuesday with European prices down 0.6% to EUR 31.88 after reaching EUR 32.74. The market is watching the US for its response to Russia’s escalation of attacks on Ukrainian cities despite talks to come to a peace deal. 

• US Treasury Secretary Bessent said that “all options are on the table”. He also cautioned China that 100% tariffs could be reimposed if it continues to buy Russian energy. Ukraine also continues to target Russian energy infrastructure. Any reduction in Russian exports would increase competition for other global supplies.
• China has increased consumption of Russian piped gas and now Gazprom announced it will build another pipeline to increase supplies. There is currently a 3000km pipeline to China, the Power of Siberia.
• Also, Bloomberg reported that it appears that Russia has made its first delivery from the restricted Arctic LNG 2 export plant after a vessel departed a Chinese port.
• US gas fell 0.2% to $2.99 after rising to $3.015 following a trough of $2.869. Prices are off their August 25 low due to EIA inventory reports showing below average storage injections.
• US demand is likely to be soft with cooling days trending lower and power usage now in the shoulder season between summer and the upcoming winter. Temperatures are forecast to be lower across the northern and eastern US in the second week of September, according to Atmospheric G2. 

The S&P(ESU5) overnight range was 6371.75 - 6472.50, SPX closed -0.69%, Asia is currently trading around 6433, +0.15%. The S&P looked in trouble at 1 point overnight, down around 1.70% and the move being led by its darling Nvidia, but demand returned sub 6400 and the news that Google will not be required to sell Chrome saw a solid bounce from the lows. We head into September which traditionally is the worst month for US Equity performance, will stocks continue to ignore seasonality like it did in August? This morning futures have opened a little higher following through with the Google news, E-minis +0.15%, NQU5 +0.25%. The market will be eyeing NFP on Friday, hoping for a catalyst to reignite momentum which looks to be stalling.

• Lance Roberts(RIA) - “Valuations are stretched, breadth remains narrow, and Fed policy is still subject to incoming data. To sustain momentum, markets will need more than AI enthusiasm; they will require broader sector participation, continued progress on inflation, and labor market data that cools without cracking. Investors should remain alert to the risk that stretched positioning meets seasonal headwinds in the weeks ahead.”
• (Bloomberg) - “US Stocks Drop as Tech Rout Deepens, Led by Downturn for Nvidia. Investors are also eying what’s historically been the weakest month for US stocks, with concerns including an unprecedented level of concentration in a handful of tech stocks, tariffs, and elevated economic uncertainty.”
• ISABELNET on X: "Equity - Systematic and discretionary positioning are diverging: systematic strategies remain bullish on equities driven by technical momentum, while discretionary investors stay cautious amid economic and geopolitical concerns" See Chart Below.
• Thomas Thornton on X: “I'm not sure how much fuel is left to power momentum higher with CTAs and vol control strategies in 100% percentile fully invested" 
• zerohedge on X: Goldman: "NFP is the week’s main event. We are at 60k, below consensus. There is a seasonal August bias to miss: August payrolls have exhibited a consistent negative bias in initial prints over the last decade."

Fig 1: SPX(ESU5) 2H Chart

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

JGB futures are biased lower in early Wednesday dealings, although we haven't tested sub 137.20 yet. We were last 137.28, -.24 versus settlement levels. Session lows rest at 137.23.

• The focus is on cash JGB yields, particularly the 30yr. We were last above 3.27%, up around 5bps in yield terms. This puts us at fresh cycle highs. The JGB 2/30s curve is now near +240bps, so back close to May cycle highs.
• The outright 10yr yield is near 1.63%, little change so far today. The 20 and 40yr yield benchmarks are up 3-4bps.
• Swap rates are also biased higher, although are showing less aggregate moves compared to cash JGB yields at this stage.
• The 30yr yield is likely to remain in focus, given pressure in longer dated global yields (US 30yr eyeing a test of 5%), while onshore political uncertainty may also be a driver. Note as well tomorrow we have the 30yr debt auction.