LNG: European Gas Rebounds On Technicals But Still Lower This Month
European natural gas prices have trended lower through the second half of February and are now down over 15% this month. The downward move has been driven by hopes of peace in Ukraine allowing sanctions on Russia to be eased as well as prospects that EU refilling rules would be eased given low storage levels and high summer-month futures prices. Gas rebounded 9.1% on Thursday due to technical oversold signals, lower prices attracting buyers and continued supply concerns.
- The European Commission plans to make refilling this year more flexible with the final 90% storage target for November 1 unchanged but the timing to get to that level more flexible, according to Bloomberg. Futures prices remain above March’s EUR 45.10 until the November contract, which is discouraging refilling. Storage levels are currently around 40%.
- US LNG fell moderately by 0.5% to $3.94 driven by a lower-than-expected inventory drawdown of 261 bcf which was still significantly greater than the 5-year average of 141 bcf (Bloomberg). Cold weather has seen gas prices rise 28.3% in February but it could shift warmer in the southern US in the first week of March, according to Commodity Weather Group.
- Europe continues to compete with Asia for global LNG supplies and Asian demand has increased with colder weather and the drop in gas prices. Last summer Asian usage of gas for cooling, especially in India, rose significantly. Another heatwave would add to Europe’s refilling challenges.
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AUSSIE BONDS: Richer After Q4 CPI Lower Than Expected
ACGBs (YM +6.0 & XM +4.5) are sharply higher after Q4 CPI data came in slightly below expectations across most metrics:
- Trimmed Mean CPI rose 0.5% q/q (vs. est. +0.6%) and 3.2% y/y (vs. est. +3.3%).
- Weighted Median CPI increased 0.5% q/q (vs. est. +0.6%) and 3.4% y/y (vs. est. +3.5%).
- Headline Consumer Prices rose 0.2% q/q (vs. est. +0.3%) and 2.4% y/y (vs. est. +2.5%).
- December's annual headline CPI matched estimates at +2.5% y/y.
- “The trimmed mean excluded price falls in both Electricity and Automotive fuel this quarter, alongside other large price rises and falls.” (ABS)
- Cash ACGBs are 4-6bps richer after the data with the AU-US 10-year yield differential at -15bps versus -10bps pre-data.
- Swap rates are 5-7bps lower, with the 3s10s curve steeper.
- The bills strip is richer, with pricing +4 to +7.
- RBA-dated OIS pricing is 3-7bps softer across meetings after the data. A 25bp rate cut is more than fully priced for April (136%), with the probability of a February cut at 89% (based on an effective cash rate of 4.34%). February was at 76% before the data.
AUSTRALIA DATA: A$ & Local Yields Softer Post Q4 CPI Miss
The A$ is weaker in the aftermath of the Q4 CPI print. We are back around 0.6225/30, off close to 0.40%. Jan 21 lows at 0.6209 will be in focus on a further pull back. In the bond futures space, ym +7 xm +5, slightly off best levels. OIS is 3 to 7bps softer across RBA meeting dates.
- Q4 CPI was weaker than forecast across both headline and trimmed mean. More details to follow.
AUSTRALIA DATA: Underlying CPI Inflation Moderates Slightly More Than Expected
Q4 trimmed mean CPI rose 0.5% q/q and 3.2% y/y, while headline was +0.2% q/q & 2.4% - both moderated more than expected. The December measures posted increases of 2.7% y/y and 2.5% respectively. More details to follow. See ABS press release here.
