LNG: Winter Weather Forecasts Driving Gas Prices

TYH5 is 108-13, -0-01 from NY closing levels. 

• Cash US tsys have opened to the week slightly mixed across benchmarks after closing last week with another heavy session.
• The US tsy 10Y yield climbed to 4.625% (+4bps) on Friday - the highest since late May'24.
• Markets will be closed on Wednesday for the New Year's Day holiday; otherwise, they will have full sessions for the balance of the week. Data includes MNI PMI and Pending Home Sales on Monday, FHFA housing data on Tuesday, weekly claims and construction spending on Thursday, and ISMs on Friday.

In early Tokyo trade, JGB futures are weaker, -15 compared to settlement levels.

• Cash US tsys have opened to the week slightly richer across benchmarks after closing last week with another heavy session.
• The US tsy 10Y yield climbed to 4.625% (+4bps) on Friday - the highest since late May'24.
• US tsy curves forged steeper as the short end outperformed on Friday: 2s10s +4.274 at 29.303, 5s30s +1.979 at 35.496.
• Short-end bid helped projected rate cuts into early 2025 gain slightly vs. Friday morning levels (*) as follows: Jan'25 steady at -2.7bp, Mar'25 -13.3bp (-13.1bp), May'25 -18.5bp (-17.7bp), Jun'25 -26.5bp (-25.7bp).
• Tsy futures had pared losses early on Friday after Wholesale Inventories came out lower than expected w/ modest down-revision to prior. Retail Inventories in-line with expectations while the Advanced Goods Trade Balance came out a little wider than October's, with the $102.9B shortfall above $98.3B prior (and $101.2B expected).
• Today, the local calendar will see Jibun Bank PMI Mfg data. 

Natural gas prices were higher on Friday due to colder weather and the approaching end to flows of Russian gas through Ukraine into Europe, which account for around 5% of overall European demand, according to Bloomberg. European prices rose 4.5% to EUR 47.77 after a low of EUR 46.65 early in the session. They are little changed this month. 

• Slovakian PM Fico has pressured European Commission President von der Leyen to find a solution to the end of the Ukraine transit agreement. His country remains dependent on these flows and he has threatened to cut off electricity to Ukraine in retaliation, which Poland has said it would replace. Von der Leyen remains committed to the phasing out of the EU’s use of Russian fuels.
• Russian President Putin has also said that it would be impossible to sort a new contract to allow gas through before the current one expires on December 31. Ukraine refuses to negotiate with Russia but is open to considering alternatives proposed by the EU.
• European gas storage levels are currently at around 75% (Bloomberg).
• The US March Henry Hub contract rose 3.1% on Friday to $2.97 and has started this week higher at $3.15. It is up 1% in December. The start of January is forecast to see colder weather moving into the central and eastern US.
• EIA-reported inventories fell 93bcf, slightly less than expected, and they remain around 5% above the 5-year average. US lower-48 gas production was 1.3% y/y higher on Friday while demand rose 6.6% y/y. Flows to LNG terminals have been lower and fell 1.6% on the week.