CNH: USD/CNY Fixing To Fresh Lows, But Fixing Error Tighter
The USD/CNY fix printed at 7.0796, fresh lows back to Oct last year. The fixing error was tighter, but still negative at -63pips (yesterday's outcome was -221pips). This is the tightest fixing error since Sep 24 this year. USD/CNH sits close to session lows post the fixing, last near 7.0800. We haven't been able to sustain sub 7.0800 levels so far today. The fixing is still supportive of yuan gains, albeit with a reduced fixing error, which is consistent with the break lower in USD/CNH recently. Downside focus will be on consolidating a break under 7.0800, then 7.0500.
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CNH: USD/CNY Fixing At Another Low, Aiding Downside USD/CNH Momentum
The USD/CNY fix hit another low of 7.0881 today (the strongest level in CNY terms since Oct last year), against a market forecast of 7.1145. The fixing error was tighter, but only marginally at -264pips (versus -283pips on Friday). This along with the positive weekend news around US-China trade talks will help keep USD/CNH risks skewed lower. We are close to 7.1100, with a focus likely to be on a test of the 7.1000 region.
LNG: US Gas Prices Higher Following Trade News
US natural gas has responded to news of a draft US-China trade deal which is expected to be agreed by Presidents Trump and Xi when they meet on Thursday. The agreement includes a year’s delay to China’s rare earths licensing regulations and should mean that the additional 100% US tariff won’t be imposed on November 1. The pullback from a trade war is positive for global energy consumption and the US was the largest LNG exporter in 2024.
- US prices are up 2.3% to $3.38 so far in Monday’s trading but off the initial jump to $3.433. They were little changed on Friday but finished the week up almost 11% on forecasts of cooler weather and thus a pickup in heating demand. Inventories remain ample which should put a cap on prices even with lower temperatures.
- Atmospheric G2 forecasts for the central and eastern US are lower as the month turns but then temperatures should be higher over November 3-7 over the east.
- US lower-48 gas production rose 5.4% y/y on Friday while demand was only 0.1% y/y, according to BNEF data. Flows for LNG rose 1.6% w/w.
- European prices continued range trading last week between EUR 31.365-32.885. On Friday they fell 1.8% to EUR 31.885 but were little changed on the week and up only 1.5% in October.
- The conflict in Ukraine remains a risk to Europe this winter with sanctions tightened on Russia and Europe’s goals of stopping Russian gas consumption by the start of 2027 as well as Russian attacks on Ukraine increasing its demand for global gas supplies. Also, Ukraine continues to target Russian oil & gas facilities.
US TSYS: Bond Yields Higher in Cash Open
The news from the US Treasury secretary that 'Trump's threat of 100% tariffs on Chinese goods "is effectively off the table" has given markets a boost Monday with equities strong and bonds weak. Bond futures are lower with TYZ5 down -06 at 113-08 with volumes light early.
Cash bonds have opened weak with yields +2bps higher across most maturities.
- The US 2-Yr is +2bps at 3.50%
- The US 5-Yr is +2.5bps at 3.63%
- The US 10-Yr has consolidated further above 4.00% at 4.02% (+2bps this morning)
- The US 30-Yr is back above 4.60%. It has risen +1.8bps this morning to 4.61% having shifted below 4.60% and held below last week.
Tonight sees multiple bill issuance, 2-Yr notes, 5-Yr notes as the key auctions for markets.
