AUSSIE BONDS: Smooth Digestion Of May-34 Supply With Increased Demand

In Tokyo morning trade, JGB futures are weaker and near session lows, -25 compared to settlement levels.

• Cash US tsys are 2-3bps cheaper in today’s Asia-Pac session after an emergency security summit in London on Sunday raised bets of increased European debt supply for defence spending. UK Prime Minister Keir Starmer convened the summit, including France’s Emmanuel Macron, as well as delegations from Canada, Germany, Norway and Turkey, in a bid to strengthen Ukraine’s position, secure a “lasting peace” and plan for security guarantees. (per BBG)
• Cash JGBs are 1-2bps cheaper across benchmarks. The benchmark 10-year yield is 2.0bps higher at 1.399% versus the cycle high of 1.466%.
• Swap rates are 1-2bps higher. Swap spreads are mixed.

Large outflows on Friday for South Korea, while outflows have increased across Indonesia, Thailand, Malaysia & Philippines.

• South Korea: Recorded -$1.26b in outflows Friday bringing the 5-day total to -$2.15b. YTD flows remain negative at -$3.85b. The 5-day average is -$431m, worse than the 20-day average of -$142m and the 100-day average of -$120m.
• Taiwan: Taiwan was out on Friday. YTD flows remain negative at -$5.15b. The 5-day average is -$499m, significantly worse than the 20-day average of -$167m and the 100-day average of -$103m.
• India: Recorded +$128m in inflows Thursday, bringing the 5-day total to -$1.66b. YTD outflows remain heavy at -$12.40b. The 5-day average is -$332m, worse than the 20-day average of -$219m and the 100-day average of -$236m.
• Indonesia: Posted -$176m in outflows Friday, bringing the 5-day total to -$622m. YTD flows remain negative at -$1.34b. The 5-day average is -$124m, worse than the 20-day average of -$56m and the 100-day average of -$35m.
• Thailand: Saw -$145m in outflows Friday, bringing the 5-day total to -$300m. YTD flows remain negative at -$525m. The 5-day average is -$60m, worse than the 20-day average of -$14m, but better than the 100-day average of -$19m.
• Malaysia: Registered -$145m in outflows Friday, bringing the 5-day total to -$285m. YTD flows are negative at -$1.20b. The 5-day average is -$57m, worse than the 20-day average of -$25m, but better than the 100-day average of -$28m.
• Philippines: Recorded -$59m in outflows Friday, bringing the 5-day total to -$83m. YTD flows remain negative at -$259m. The 5-day average is -$17m, worse than the 20-day average of -$7m, and in line with the 100-day average of -$7m.

Table 1: EM Asia Equity Flows

Oil prices fell moderately on Friday to be down on the week and the month driven by expectations of increased supply and worries about global demand in a world of increased protectionism. They recovered from their intraday lows but were pressured by the stronger US dollar (BBDXY USD index +0.3%) driven by increased geopolitical uncertainty following the tense meeting between the US and Ukrainian presidents.  

• WTI fell 0.6% to finish below $70/bbl but has started today slightly higher at $70.18. It made an intraday low of $69.14. The benchmark ended February down 2.8%. Initial support is at $68.36, 26 February low, while resistance is at $71.34, 50-day EMA.
• Brent was 0.7% lower at $73.08/bbl after falling to $72.32 and was down 2.5% last month. It remained above initial support at $71.50, 26 February low, but the outlook remains bearish with the bear trigger at $72.96 breached. Initial resistance is at $74.21, 50-day EMA.
• The EIA estimates that US tariffs and sanctions risk around 80% of oil imports. Last year, the US imported 4.76mbd from Canada, Venezuela and Mexico. 10% tariffs on energy from Canada and Mexico are scheduled from March 4 and Chevron’s licence to export from Venezuela has been rescinded.
• The prospect of higher tariffs and their negative impact on growth has driven hedge funds to reduce their net-long positions in WTI to their lowest since 2010. The short-only stances were their highest in over a year, according to CFTC data reported by Bloomberg.
• There had been growing market expectations that peace in Ukraine would ease sanctions on Russia allowing it to increase exports. While the argument between the White House and President Zelensky makes this less likely, the meeting between the latter and the EU may have moved the situation closer to a temporary truce.
• Talks are scheduled on Tuesday in Baghdad between Iraqi natural resources officials and oil producers in Kurdistan to discuss the resumption of flows from the region after a two-year dispute. If successful, it is unclear how Iraq will continue to meet its OPEC quota and not overproduce.