AUSSIE BONDS: Typical Subdued Pre-US Payrolls Session

Oil prices have held onto Monday’s 3.7% gains and continued to trade higher during today’s APAC session. WTI is up 0.4% to around $62.80/bbl but off the intraday high of $63.25, but continues to trade above the 50-day EMA at $62.47 opening up key resistance at $65.82. Brent is 0.3% higher at $64.82 but down from today’s peak of $65.34, just above initial resistance at $65.31. The USD index is up 0.1%. 

• The fading prospect of an easing in sanctions on Russia or Iran has supported oil prices. The potential increase in supply was a concern at a time of output normalisation from OPEC.
• While OPEC announced another 411kbd production increase from July, many of the group’s members have little spare capacity with Saudi the main one who can boost output, which it may choose not to do. The impact of normalisation may not be as much as feared if many in OPEC end up underproducing quotas.
• Also on the supply side, fires in Alberta have threatened oil production resulting in around 350kbd or 7% of Canadian output being shut down, according to Bloomberg. The closures impact heavy crude which is currently in short supply due to seasonal maintenance.
• With the significant uncertainty created by US trade announcements in recent months, data is being scrutinised for observable effects on activity. For oil, US inventory data is being monitored for signs of demand slippage and how the driving season is progressing. The industry-based data is out today with the official EIA on Wednesday.
• Later the Fed’s Goolsbee, Cook and Logan appear. May euro area HICP, US April JOLTS job openings and final April US orders print.

ACGBs (YM flat & XM -1.0) are little changed after dealing in narrow ranges in today’s Sydney session. 

• Cash US tsys are ~1bp richer in today's Asia-Pac session after yesterday's sell-off. Today’s US calendar will see Factory Orders, Durable Goods Orders and JOLTS. Non-Farm Payrolls are due on Friday.
• Cash ACGBs are little changed with the AU-US 10-year yield differential at -15bps.
• The May meeting RBA minutes confirmed that staying on hold, 25bp and 50bp rate cuts were discussed. It appears that not only is there considerable uncertainty regarding the outlook but that the Board prefers to remain cautious and move “predictably”, as a result, it cut by the widely expected 25bp, which was also assumed in its updated staff projections. Given not just global uncertainties but also around the level of monetary restrictiveness and tightness in the labour market, another cut in July is not fixed and will be highly data and event-dependent.
• The bills strip is slightly mixed, with pricing -1 to +1.
• Tomorrow, the local calendar will see Q1 GDP, with the market expecting +0.4% q/q and +1.5% y/y.
• The AOFM plans to sell A$800mn of the 1.50% 21 June 2031 bond on Friday.

The BBDXY has had a range of 1207.93 - 1211.32 in the Asia-Pac session, it is currently trading around 1210. Robin Brooks on X: “Today's Dollar fall is worrying. It mirrors Dollar weakness in early April, when the Dollar (black) fell even as interest differentials of the US vis-à-vis the G10 (blue) were stable(see graph below). That kind of decoupling of the Dollar from rate differentials is unusual and a worrying sign.”  https://x.com/robin_j_brooks/status/1929653605440606282

• EUR/USD -  Asian range 1.1416 - 1.1455, Asia is currently trading 1.1420. EUR has drifted lower during the Asian session as US stock futures trade weaker. Dips should continue to find support, the demand back towards 1.1200 proved to be solid last week.
• GBP/USD - Asian range 1.3515 - 1.3559, Asia is currently dealing around 1.3520. The GBP is attempting another run higher but is struggling to gain any momentum on a 1.3500 handle. Look for an opportunity to buy again back towards the 13300/3400 area if seen.
• USD/CNH - Asian range 7.2016 - 7.241, the USD/CNY fix printed 7.1869. Asia is currently dealing around 7.1985. Sellers should be around on bounces while price holds below the 7.2500 area. 
• Cross asset : SPX -0.42%, Gold $3361, US 10-Year 4.43%, BBDXY 1210, Crude oil $62.81

• Data/Events : Spain Unemployment, Italy Unemployment, EC CPI

  Fig 1: DXY vs 2Y2Y FWD Rate

  

  Source - Robin Brooks via X