LNG: Weather Forecasts Drive European Prices Lower & US Higher
European natural gas fell 5% to EUR 45.10 on Wednesday to be down 7.8% in January, more than unwinding the rally ahead of the end to Russian gas through Ukraine. Forecasts for milder weather drove the decline as well as the technical-driven drop in oil prices. A weaker outlook for China’s demand also contributed, as Europe competes with Asia for global gas supplies.
- European temperatures are currently expected to move above the 30-year average in around 10 days.
- The outage at Norway’s Hammerfest LNG export plant continues but doesn’t seem to be disturbing markets at this stage.
- US natural gas rose sharply on Wednesday up 6.4% to $3.67 buoyed by continued very cold weather, but it is up only 1% this month. RBC Capital has said that around 5% of Texas’ Permian production has been impacted by freezing temperatures. The Midwest is forecast to see lower temperatures over January 18-22, according to Maxar.
- The cold snap has increased heating demand with US lower-48 gas demand up 18.3% y/y on Wednesday. The EIA reported a gas drawdown of 40 bcf last week and that inventories are still 6.5% above the 5-year average.
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AUSSIE 10-YEAR TECHS: (Z4) Shallow Bounce
- RES 3: 96.975 - High Mar 14
- RES 2: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- PRICE: 95.733 @ 16:08 GMT Dec 09
- SUP 1: 95.275 - Low Nov 14
- SUP 2: 94.722 - Low Jul 2
- SUP 3: 94.514 - 1.0% 10-dma envelope
Aussie 10-yr futures added to the recent recovery last week, with soft Australian GDP adding a tailwind. For the corrective bounce to take hold, prices must break and hold above the 96.207 level. Bearish price patterns, however, expose 94.722 on further weakness, ahead of vol-band based support at 94.514.
CHINA: Xinhua Reports that Bolder Stimulus Next Year Coming.
- China’s Politburo meeting for December has sent a clear message to economy that bold economic support can be expected next year.
- The Politburo has vowed to ‘embrace a moderately loose monetary policy in 2025 (as per article on Xinhua).
- They have also indicated that a shift away from the last decades’ prudent strategy.
- To complement looser monetary conditions China’s leaders also pledge a more proactive fiscal policy.
- Yesterday it was reported that China is likely to abandon its long-held 3% fiscal deficit cap.
AUSSIE BONDS: Cheaper With US Tsys Ahead Of RBA Policy Decision
In roll-impacted dealing, ACGBs (YM -4.4 & XM -5.4) are weaker after US tsys finished the NY session with a bear-steepener ahead of Wednesday's CPI report.
- US tsys were underwater all session, led by the long end amid some inflation concerns. The 30- and 10-year yields were up ~5bps at 4.39% and 4.20%, respectively. The 2-year was 2bps higher at 4.120%.
- Upcoming supply, including $119bn in Treasury auctions this week and a rash of corporate issuance, weighed.
- Today we will see the RBA’s policy decision, with the cash rate unanimously forecast to remain at 4.35%. Accordingly, the guidance will be monitored closely for any changes. The RBA meeting will be followed by Governor Bullock’s press conference.
- The domestic calendar will see November jobs data on Thursday after October disappointed. Bloomberg consensus is again forecasting a 25k increase in employment in November with the unemployment rate rising 0.1pp to 4.2%.
- Cash ACGBs are 4-5bps cheaper with the AU-US 10-year yield differential at +5bps.
- Swap rates are 4-5bps higher.
- The bills strip is -3 to -4 beyond the first contract (-1)
- RBA-dated OIS pricing is 1-3bps firmer across 2025 meetings. A 25bps rate cut is not fully priced until May. The market attaches a 10% chance that the RBA will cut today.
