CNH: USD/CNY Fixing Edges Up Wednesday

European gas rose while the US fell on Friday as weather forecasts diverged. Europe has had a mild start to the heating season but a drop in temperatures is expected from this week. The region started with inventories below last year’s level and the market remains vulnerable to spikes in demand or supply disruptions. 

• European storage continues to trend lower reaching 67.2% on Saturday, about 10pp below average. It started December around 75%. The reversal in prices since the 11 December low should help attract LNG shipments back to the region.
• European prices rose 2.1% on Friday to EUR 28.225 after a high of EUR 28.500, the highest since end November. They rose 2% on the week on increased heating demand expectations but are still down 2.1% this month.
• Ukraine continues to target Russian energy infrastructure with the Krasnodar Krai gas pipeline damaged near the Crimean Bridge.
• Purchasers took advantage on Friday of the sharp fall in US gas prices pushing them up 3.0% to $4.026 but they were still down 2.1% on the week. The January Henry Hub contract is 16.2% lower in December and been in oversold territory. They reached a trough of $3.840 on Friday before recovering. They are higher in Monday’s trading at around $4.067.
• A shift in forecasts for warmer weather in the US had driven the gas sell off and Atmospheric G2 reported higher temperatures towards end December and into early January.
• Lower-48 US gas production rose 9.4% y/y on Friday while demand fell 1.2% y/y, according to BNEF data. Flows to LNG export terminals fell around 2.7% w/w.
• Australia has announced that 15-25% of new LNG production will have to be reserved for the domestic market effective immediately but not retroactively applied.

JGB futures have broken to fresh lows in the first part of Monday dealings, with the March future last 132.45, -.40 versus settlement levels. This is a continuation of moves seen in the aftermath of last Friday's BoJ hike. Cash JGB yields are firmer across the benchmarks, led by the 3-10yr tenors, up 3-4.5bps. Aiding the moves is the softer US Tsy futures backdrop, TY off -02. 

• Most focus remains on the BoJ outlook, as lack of clarity around the next hike timing drives a steepener bias. The 2/10s curve is back to +96bps, fresh highs since 2011. The 10yr is trading close to 2.07%, up 4bps so far today. The 20-40yr tenors are around 1-2bps higher. The 5yr yield is above 1.50%, up close to 4bps.
• News flows has seen fresh FX jawboning comments cross the wires (from Japan's top FX diplomat), which may signify some resistance around a fresh break above 158.00 for the pair. 

The BBDXY range Friday night was 1208.02 - 1210.41, Asia is currently trading around {BBDXY Index}. The USD traded with an underlying bid tone testing the 1210 area to end the week. This had more to do with the surge higher in USD/JPY than any real USD strength as the moves elsewhere in currencies and more importantly in metals attest to. Robin Brook made an important point on Friday, take out the JPY in the USD basket and the USD is falling a lot more than is being appreciated. On the day I still have very little conviction on direction, continue to watch for resistance again around the 1210 area and above here the more important 1213-1216 area where sellers should remerge initially. Can this 1204 area continue to provide support if not a move below here would target 1198-1200. 

• Robin Brooks on X: “Silver prices (XAG/$) are now up 76% since the Fed's Jackson Hole meeting on August 22. There have been lots of doubts whether the debasement trade is real or not, but I think - at this point - there can be no doubt whatsoever that this thing is real and it's absolutely massive.”
• MNI BRIEF: Fed's Williams-No Urgency To Act Further Right Now. "Monetary policy is really well positioned right now to gather more information," he said in a CNBC interview. "I don't personally have a sense of urgency to need to act further on monetary policy further right now because the cuts we've made have positioned us really well."
• Bloomberg - “Cleveland Fed President Beth Hammack told the WSJ that rates can stay where they are for “some period of time,” possibly until the spring, to await clearer evidence that inflation is receding.”
• The BBDXY Average True Range for the last 10 Trading days: 346 Points

Fig 1: BBDXY Daily Chart

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