FOREX: USD Consolidates After Sharp Thursday Drop, Still Down For 3rd Week
Feb-21 00:55
Early G10 forex trends are seeing some USD stability after Thursday's sharp sell-off. The BBDXY index was last a touch higher near 1284, but we are still down 0.33% for the week, tracking lower for the third straight week.
- USD/JPY remains in focus. The pair got to lows of 149.29 just after the Jan nationwide CPI print. We were close to expectations, but core ex fresh food was slightly above expectations (3.2%y/y, versus 3.1% forecast). Still, the detail showed services inflation moderating to 1.4% y/y from 1.6%. The print may not have been strong enough to add fresh impetus to bullish yen momentum. USD/JPY sits back at 149.75/80 in latest dealings, slightly weaker in yen terms for the session.
- AUD/USD got to highs of 0.6409, but sits back under the figure level now. RBA Governor Bullock is before parliament today, largely reiterating Tuesday's post easing commentary, that the central bank will be careful with further easing and isn't on a pre-determined path. NZD/USD is close to unchanged, last near 0.5760. Earlier data showed the trade position falling back into deficit for January.
- Australian preliminary PMIs for Feb pushed higher per S&P (50.6 for manufacturing and 51.4 for services). In Japan, the manufacturing PMI edged up but remains sub 50.0.
- EUR/USD has drifted a little lower, last around 1.0490, against earlier highs of 1.0506. USD/CNH has risen back above 7.2400.
- In the cross asset space, US equity futures are little changed. US Tsy yields are edging up but moves are very modest, less than 0.5bps at this stage.
- There isn't much in the way of further risk events/data outcomes for Asia Pac markets today.
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LNG: Prospect Of German Refilling Subsidies Boosts European Gas Prices
Jan-22 00:45
US and European gas prices continued to diverge on Tuesday as lower inventories in the latter drive prices up and the prospect of warmer weather and increased energy production in the former push prices down.
- European natural gas rose 3.9% to EUR 49.72, close to the intraday high of EUR 50.25. Prices are up 6% this week and are now slightly higher on the month. They rallied yesterday on news Germany is considering subsidising the refilling of its storage, the largest in the EU, over the summer thus increasing demand. The spread between summer and winter prices has risen above EUR 3 and risks not enough inventory build ahead of next winter, according to Bloomberg.
- The IEA estimates European LNG demand will rise 15% this year after falling in 2024. EU President von der Leyen has discussed increasing US LNG imports and US President Trump has said that Europe needs to increase purchases of US oil and gas to escape tariffs. Europe continues to compete with Asia for global supplies.
- Citigroup expects global LNG supply to rise 40% by 2028 pushing prices down.
- US gas fell 4.2% to $3.78 to be down 4.2% this week but still around 4% higher in January. Temperatures around month-end are forecast to be higher in the eastern and central US, according to Maxar.
- US LNG export facility Freeport has gone offline due to a power disruption. Snow is also impacting Texas’ LNG exports. These outages are likely to impact European supplies at a time of below-average inventories.
- Lower-48 US gas production fell 2.3% y/y on Tuesday, while demand increased 13.8% y/y. Estimated flows to LNG export depots were down 18% on the week, according to Bloomberg.
ASIA STOCKS: Outflows Continue In Asian Equities
Jan-22 00:31
Further outflows in Asian on Tuesday, although below the short term averages. India continues to see heavy outflows marking 12 straight sessions and a total outflow of $5.4b so far this year
- South Korea: Saw outflows of -$159m yesterday, contributing to a 5-day total of -$216m. YTD flows are negative at -$216m. The 5-day average is -$43m, slightly worse than the 20-day average of $0m but better than the 100-day average of -$157m.
- Taiwan: Saw outflows of -$27m yesterday, leading to a 5-day total of +$768m. YTD flows are negative at -$1.8b. The 5-day average is +$154m, better than the 20-day average of -$78m and the 100-day average of -$119m.
- India: Recorded significant outflows of -$430m yesterday, resulting in a 5-day total of -$2.76b. YTD flows are deeply negative at -$5.38b. The 5-day average is -$551m, worse than the 20-day average of -$326m and the 100-day average of -$82m.
- Indonesia: Saw outflows of -$24m yesterday, bringing the 5-day total to +$37m. YTD flows are negative at -$207m. The 5-day average is +$7m, better than the 20-day average of -$12m and equal to the 100-day average of $0m.
- Thailand: Saw inflows of +$5m yesterday, contributing to a 5-day total of -$82m. YTD flows are negative at -$204m. The 5-day average is -$16m, worse than the 20-day average of -$9m and in line with the 100-day average of -$9m.
- Malaysia: Recorded outflows of -$5m yesterday, leading to a 5-day total of -$204m. YTD flows are negative at -$465m. The 5-day average is -$41m, worse than the 20-day average of -$25m and the 100-day average of -$19m.
- Philippines: Saw outflows of -$3m yesterday, bringing the 5-day total to -$34m. YTD flows are negative at -$86m. The 5-day average is -$7m, slightly worse than the 20-day average of -$6m and the 100-day average of -$1m.
Table 1: EM Asia Equity Flows
CNH: USD/CNH Firmer, But Within Recent Ranges, Implied Vols Edge Higher
Jan-22 00:15
USD/CNH is holding near 7.2750, a little off earlier session highs (7.2831). Upside focus may rest on Tuesday intra-session highs (7.2965). Before this we have the 50-day EMA close to 7.2870. Yesterday's lows were at 7.2524.
- CNH sentiment has been weighed by earlier remarks from US President Trump, which threatened a 10% tariff on China due to fentanyl flows from the country (per BBG). Trump mentioned a possible Feb 1 date, although he was also discussing that date in the context of tariffs on Mexico and Canada, which was also the date mentioned yesterday in his press conference.
- Broader yuan sentiment had firmed in recent sessions as Trump's inauguration came and passed without any early tariff action. This also follows the release of the America First Trade Policy document from the White House, earlier this week (see this link). This pointed to the start of April in terms of reporting on various issues back to Trump and suggests it could be some time before fresh trade action is launched, at face value in any case.
- USD/CNH implied vols have ticked higher but are still well off recent highs, the 1 week at 5.43%, the 1 month at 5.41%.
