EM ASIA CREDIT: UltraTech Cement: Capacity rising fast

• A news article from the Government run China Daily this morning indicates that a strategic move is beginning in China, that may have profound implications for the US and their fiscal position.  
• China Daily reports that is is a 'strategic necessity' for the scaling back of holdings in US Treasuries, given the declining confidence in the dollar as the reserve global currency.  
• The article states that China intends to pursue a more balanced, controllable allocation of FX reserves and likely to increase its holdings of non-dollar assets, including financial instruments of Asian trading partners.  
• Yu Yongding, an academic member of the Chinese Academy of Social Sciences, called for China to continue reducing US government debt holdings in an orderly manner and that in extraordinary times, extraordinary measures are called for.  
• The latest Treasury holding data shows the UK taking over China as the third largest holder of US Treasury securities, see the chart below (China holdings are the white line).
• China has total holdings of USD 756.3 billion, to now rank third in largest holdings behind Japan and UK, according to US Treasury data.  This shift marks a significant moment in the global financial landscape. The last time the UK ranked ahead of China in US debt ownership was in 2000—more than two decades ago. China holdings have flatlined somewhat in recent years, after falling through much of 2021-2023.
• The Governor of the PBOC Pan Gongsheng has been clear in his assessment of the risks associated with the USD dominance and that the fiscal position of the US economy, could spill over into global markets.  
• China's FX reserves recently increased to US$3.32tn, its highest level in a decade.  

Fig 1: China, Japan and UK Treasury Holdings 

 Source: Bloomberg Finance L.P./MNI 

European gas fell 2.0% to EUR 33.71 on Friday off the intraday low of EUR 33.41. It reached EUR 36.32 on July 14 but is still up 2.5% over the month. Forecasts for cooler weather over the rest of July have pressured prices more recently.

• The EU announced a reduction in the price cap for Russian crude and further targeting of its shadow fleet as well as measures impacting refined products and another 20 banks losing access to the global payments system SWIFT. It continues to plan a phase out of Russian gas imports.
• Norway’s Gassco announced an unplanned outage impacting 8.0 mcm/d from yesterday.
• Chevron stated that full LNG production has resumed at its Australian Gorgon export facility after repairs to Train 3 began.
• US natural gas is down 4.9% in Monday’s trading to $3.39. It rose 0.7% to $3.57 on Friday to be up 3.2% this month. The slight increase was driven by forecasts of warmer weather for the southern US towards the end of July (Atmospheric G2) thus increasing the prospect of a pickup in cooling demand.
• Ample inventories continue to keep a lid on any price rises as storage stands 6.2% above the 5-year average, according to Bloomberg. Lower-48 US production rose 5.3% y/y on Friday, while demand fell 0.3% y/y. 

US stocks are consolidating near their new all-time highs. This morning has seen US futures open slightly higher, ESU5 +0.12%, NQU5 +0.18%. The risk back drop still looks pretty good and this election outcome only adds to the headwinds for JPY longs, was this morning's reaction simply a “buy the rumour sell the fact” ?

• EUR/JPY - Friday night range 172.73 - 173.11, Asia is trading around 172.50. This pair has had a decent move higher and has led the charge against the JPY longs. Short-term it is starting to look a little stretched but the direction is clear and should expect demand on dips. First support 170.50 area then the more important 168.50 area.
• GBP/JPY - Friday night 199.47 - 199.97, Asia trades around 199.10. The pair continues to find good demand towards its support around 198.00 though momentum higher has stalled for now. 
• NZD/JPY - Friday night range 87.49 - 88.81, Asia is currently dealing 88.20. The pair has also seen upward momentum stall this morning. The Support towards 87.00 needs to hold for the focus to remain on the 90.00/91.00 area.
• CNH/JPY - Friday night range 20.6515 - 20.7301 Asia is currently trading around 20.6800. This pair has pulled back from its highs but the pair still looks like it could continue to press higher. Look for demand now back towards the 2.40/50 area.

Fig 1 : CNH/JPY Hourly Chart

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