AUSSIE BONDS: ACGB Nov-28 Auction Results

European natural gas fell sharply on the first trading day following the Easter holiday. It was down 3.7% to EUR 34.35 after rising to EUR 35.79 early in the session and then falling to EUR 33.93. Prices are now over 15% lower in April driven by the end of the heating season and concerns that increased protectionism will weigh on global energy demand. 

• Steady imports of LNG are allowing Europe’s refilling process to take place after storage ended the winter at multi-year lows. The weather is warming up as spring progresses, which should help rebuild inventories.
• The EU continues to work towards a plan to eliminate its use of Russian fossil fuels due to be released on May 6. It is considering prohibiting spot buying of Russian gas; however they are only a small share of the total. The ban would also include oil and uranium. EU LNG imports from Russia rose to a record high in 2024, according to Bloomberg.
• US gas fell 0.4% on Tuesday to $3.17 but is down over 25% this month as forecasts for warmer weather weigh on prices. It rose to $3.24 before falling to $3.10. Inventories are being built though as expectations of increased cooling demand grow, which may support prices. June becomes the most active contract next week.

The Australian Office of Financial Management (AOFM) will today A$1000mn of the 3.25% 21 April 2029 bond, issue #TB138. The line was last sold on 4 December 2024 for A$700mn.

• Several factors could influence bidding at today’s auction. The bond’s outright yield has fallen dramatically in April as global equity markets reacted negatively to President Trump’s tariff announcements. The outright yield now sits 50-55bps lower than the previous outing and ~80bp below the November 2024 peak.
• Market expectations for RBA easing in 2025 have also strengthened in April. A 50bp rate cut in May is given a 13% probability, with a cumulative 115bps of easing priced by year-end (based on an effective cash rate of 4.09%).
• The line’s inclusion in the YM basket is also likely a positive alongside haven demand.
• Overall, another round of well-received supply is expected.
• Results are due at 0200 BST / 1100 AEST.

The S&P Global preliminary April PMIs showed steady but moderate growth at the start of Q2 with the composite at 51.4 down slightly from 51.6 with services printing inline. Manufacturing activity eased slightly with the PMI at 51.7 after 52.1 in March, but the fourth consecutive month in positive territory after spending most of 2024 contracting. Strength was driven by the domestic economy though with global trade developments weighing on exports and confidence.

• Growth in new business rose in April to its fastest in two years with strength coming from services but manufacturing also saw a moderate pickup. This drove continued hiring, which remains at a 23-month high, but also the strongest rise in outstanding business in almost three years, according to S&P Global.
• Stronger demand resulted in a deterioration in the inflation picture with firms able to pass on higher costs to customers. Input inflation remains elevated driven by raw materials, energy, wages and imports due to the weaker AUD. Selling price increases rose this month with manufacturing at its fastest in more than 2 years.
• New business appears to be concentrated in the domestic economy though with exports falling for the second straight month due to increased uncertainty over US trade policy.
• Fears of a global trade war and resulting slower global growth weighed on confidence regarding the outlook with it falling to its lowest in 6 months. 

Australia S&P Global PMIs