USD: BBDXY - Continues To Probe The 1200 Area

Container ship tracking data suggest that trade flows have picked up again following the April 2 US announcement of extensive reciprocal tariffs as traders take advantage of the 90-day delay which expires July 8. Most major routes to the US have seen the number of vessels return to around average. Trade talks are ongoing and will determine if this stays the case in Q3 but the inventory build ahead of deadlines may drive a reduction in global trade flows in H2 anyway.

• Bloomberg’s container ship count data covers the number of loaded ships leaving for the US. Looking at the 30-day average, shipments from Europe, Korea, Taiwan and Japan rose over Q1 to beat initial US deadlines, and then all ex Japan declined over April. 

Bloomberg container ship count 30-day moving average

Source: MNI - Market News/Bloomberg Finance L.P.

• Interestingly cargos leaving China had been trending down from September to end-March signalling no intention to frontload exports. However, then they rose sharply to mid-April before plummeting again in line with the escalation in the US-China trade spat but at the end of April before the US-China Geneva meeting announcement on May 11 they rose sharply possibly on a willingness to absorb tariffs or expectations that they would be delayed or reduced before the ships arrived. 

Bloomberg container ship count

• In June, the number of ships departing China for the US is around 5 above the average from 2023 to end-January 2025 suggesting a normalisation of trade flows or some frontloading. The number from Japan is in line with this average signalling expectations that a deal will be agreed. Taiwan is one ship above average this month and Korea is two.
• While European ships to the US are off the May 23 low, in June they were still 10 vessels below average. There was significant European frontloading in Q1, as seen by Irish pharmaceutical exports to the US, and this below-par recovery may reflect that. 

• The PBOC issued CNY164bn of 7-day reverse repo at 1.4% during this morning's operations.
• Today's maturities CNY214.9 bn
• Net liquidity withdrawal CNY50.9 bn.
• The PBOC monitors and maintains liquidity in the interbank system through the issuance of reverse repo.
• The CFETS Pledged Repo Deposit Institutions 7 Day Weighted is at 1.47%, from yesterday's close of 1.50%.
• The China overnight interbank repo rate is at 1.35%, from the prior close of 1.37%.
• The China 7-day interbank repo rate is at 1.50%, from the prior close of 1.55%.

Today’s auction reflected solid pricing for ACGBs, with the weighted average yield coming in 0.65bps below prevailing mid-yields, according to Yieldbroker. However, the cover ratio declined to 3.2100x from 3.4786x in the previous auction.

• The softening in demand at today’s auction came with the outright yield some 20bps lower than at the time of the previous auction, and roughly 60bps below the November 2024 peak.
• Souring sentiment toward global bonds over the past six weeks likely weighed on demand, as did the absence of this line from either the YM or XM baskets and its position in a less preferred segment of the curve.
• Post-auction, the cash line and XM have cheapened slightly.