AUSSIE BONDS: ACGB Nov-29 Supply Faces A Lower Yield & A Steeper Curve

Oil prices fell sharply on Tuesday and have continued selling off during early APAC trading. Risk appetite reversed when it became clear that not only will US reciprocal tariffs take effect from 0001 ET Wednesday but 104% was confirmed on China. A 34% reciprocal tariff was added to the original 20% and then another 50% as retaliation for China’s response. China said today that it prefers to negotiate but will “fight to the end” signalling no compromise at this stage.

• China is the world’s largest oil importer and a trade war is expected to weigh on global energy demand. China is also likely to continue switching any crude imports from the US to other suppliers. 
• WTI fell 4.1% on Tuesday to $58.23/bbl, close to the intraday low of $57.88. It reached a high of $61.75 in the Asian session. In early APAC trading it is down another 3.4% to $57.58 after reaching $57.22. Support at $58.95 and $57.79 have been broken opening up $56.81. Round number support is at $55.00.
• Brent sank 4.0% yesterday to $61.62/bbl after a low of $61.34. It breached support at $62.51 and $61.97 opening up psychological round number support at $60.00.
• Bloomberg reported that there was a US crude inventory drawdown of 1.1mn barrels last week but they rose 600k at Cushing, according to people familiar with the API data. Gasoline rose 200k while distillate fell 1.8mn. The official EIA data is out later today.
• The sell off in oil has been exacerbated by OPEC’s decision to increase output at a greater-than-expected rate but many producers will face budget pressures with prices around these levels. 

ACGBs (YM +8.0 & XM -8.0) have twist-steepened in line with developments abroad. 

• Overnight, US tsys finished mostly weaker as tariff headlines continued to rattle markets, with curves twisting to the steepest levels in over three years.
• The US long end was hit hard with the 30-year cheapening by 15bps. The 10-year was 11bps higher at 4.29%, while the 2-year yield richened 4bps to 3.73% on haven demand and rate cut bets.
• Trump officials confirmed 104% added tariff on China went into effect at noon, with WH press sec Leavitt adding that additional tariffs are to be collected starting tomorrow.
• Cash ACGBs are 8bps lower to 8bps higher with the 3/10 curve steeper and the AU-US 10-year yield differential at -3bps.
• The bills strip has bull-flattened, with pricing +7 to +14.
• RBA-dated OIS pricing is 1-14bps softer across meetings today. A 25bp rate cut in May is given a 70% probability, with a cumulative 128 bps of easing priced by year-end (based on an effective cash rate of 4.09%).
• Today, the local calendar will see Consumer Inflation Expectation data and a speech by RBA Governor Bullock.
• The AOFM plans to sell A$1000mn of the 2.75% 21 November 2028 bond tomorrow.

Stocks closed very poorly overnight putting risk under pressure once more into the Asian open. The break higher in USD/CNH has profound implications for the AUD and if the markets view that the PBOC is to let the CNH move higher proves to be correct, expect the AUD to come under more pressure.

• EUR/AUD - Overnight range 1.7960 - 1.8422, Asia opens with the AUD under pressure and EUR/AUD making new highs around 1.8482. This move looks set to continue.
• GBP/AUD - Overnight range 2.1009 - 2.1479, Asia continues to push this cross higher testing 2.1515 at the time writing. This move looks to be building up momentum and has potential to start accelerating, above 2.20/25 it could get messy.
• AUD/JPY - Overnight range 86.88 - 89.69, everyone's favourite way to express risk aversion in FX. The poor close therefore sees Asia continue the theme and make new lows, the first target looks to be the 78.00/80.00 area.
• AUD/NZD -  Overnight range 1.0741 - 1.0830, some consolidation in the cross as both AUD and NZD are impacted by moves in risk and the USD/CNH. Expect supply on any move back towards 1.0850/1.0900.

GBPAUD

Source: MNI - Market News/Bloomberg