LNG: Gas Prices Fall On Supply Hopes & Warmer US Weather

Forecasts for cold weather have driven US and European natural gas prices higher. Europe rose 4.5% on Monday to EUR 58.24 to be up 9.4% already in February. High gas prices are resulting in shifts to oil for heating and driving concerns over summer/spring refilling especially as storage levels are at a 3-year low. Cold weather, less wind-power and the end to Russian pipeline flows through Ukraine have driven the drawdowns. 

• European natural gas futures are around $5 higher through the coming summer months than next winter ahead of the storage deadlines. This is discouraging purchases for refilling and a number of governments are looking at intervening, which may cause its own problems. There are also concerns regarding the impact of high energy prices on already struggling European industry and households.
• US natural gas rose 4% yesterday to $3.44 to be up 13% this month driven by forecasts from Atmospheric G2 for colder weather in the eastern and central US in mid-February. Prices had previously eased on confidence that supplies would be adequate to meet heating demand over the rest of the winter.
• On Monday tariffs of 15% were imposed by China on US LNG imports in retaliation for the US’ universal 10% tariff on imports from China. US shipments are expected to be diverted to other regions, especially Europe, resulting in little disruption to US suppliers.
• India has now joined Europe in discussing with US President Trump the possibility of buying more US LNG to try and deflect targeted US tariffs. PM Modi is due to meet with Trump this week. 

ACGBs (YM flat & XM -0.5) are little changed. 

• US equity markets gained without economic data or other catalysts as the investors look ahead to key US inflation data and Fed Chair Powell’s testimony to US lawmakers.
• Nonetheless, headlines continued to rattle markets. US tsys & stocks gapped lower in the Asia-Pac session after President Trump announced 25% tariffs on all imported steel and aluminium into the US. However, markets recovered as details were vague.
• Risk-off sentiment reemerged as Israeli/Hamas hostage transfers appear to have hit a snag with both sides accusing each other of breaching ceasefire/transfer agreements.
• Cash ACGBs are 1bp lower to 1bp higher with the AU-US 10-year yield differential -9bps.
• The swaps curve has twist-steepened, with rates 1bp lower to 1bp higher.
• The bills strip is slightly mixed across contracts.
• RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut is more than fully priced for April (126%), with the probability of a February cut at 88% (based on an effective cash rate of 4.34%).
• Today, the local calendar will see Westpac Consumer and NAB Business Confidence.
• This week, the AOFM plans to sell A$400mn of the 2.75% 21 May 2041 bond on Wednesday and A$700mn of the 1.50% 21 June 2031 bond on Friday. 

• Gold touched new all time highs overnight as headlines on potential tariffs on steel and aluminum shook investor confidence.
• Gold’s rise was steady and consistent throughout the day reaching a new high of $2,911.72, before closing at $2,908.22.
• Gold’s ‘safe-haven’ status ensures that in periods where the unpredictability of President Trump’s comments or threats on tariffs spooks markets, gold climbs.
• Evolving news out of China could have material impact for gold as a pilot program for insurance funds is being launched that allows diversification of their asset allocation into gold; with estimates ranging of US$25 to $30 billion could be allocated to the scheme.
• Gold’s appeal is having far reaching impacts globally with South African listed goldminers jumping 2.3% on Monday, following Trump headlines on tariffs.
• Given Gold is impacted by interest rate movements, the day ahead sees the Federal Reserve Chairman Jerome Powell’s semi-annual testimony to lawmakers where market observers will pore over every  word for hints as to the direction of interest rates.