JGBS: Bear-Steepener, Post-Auction Sell-Off In 40Y Continues

Shipping rates have been trending lower since mid-2024 as threats to Red Sea shipping dissipated and much of the related jump has now been unwound. They have taken another leg down since January this year though, as threats to global trade volumes from US tariffs weigh on prices charged. Since US reciprocal trade duties were announced on April 2, various shipping rate indices are mixed though.

• The Baltic Dry Index (BDI) is down 11.4% since April 2 and the average is -11.6% m/m & -21.9% y/y in April.
• February global IP rose 0.7% m/m, the 10th non-negative reading in the last year, to be up 2.9% y/y, the fastest since October 2022. Global trade growth has been trending up for the last year and was 3.0% y/y in February. However, both could slow going forward given that the BDI has been trending lower over the last year and can be a leading indicator.

Global trade vs Baltic Freight Index

• The FBX container rate is down 6.5% m/m & 15.9% y/y in April but actually up 0.7% since April 2 driven by an 8.3% increase in the China/East Asia to Mediterranean route, but this reflects some normalisation after the sharp drop on April 1 and it is still down almost 20% m/m on average in April to be 33.1% lower on a year ago.
• Given the tit-for-tat tariff increases between the US and China, it is not surprising that FBX container rate for China/East Asia to the east coast of North America is now 6.2% lower compared to April 2. The April average is little changed on the month but down 18.8% y/y.
• With shipping rates down double digits compared to a year ago and levels subdued, they are likely to provide some disinflationary pressure but container rates are still higher than end-2023 with the FBX up 52.1%, while BDI is now 33% lower.

Global FBX container rates US$/points

The USD BBDXY index is up a touch in early dealings, last near 1221. The USD has ticked up against all the majors at this stage. Aggregate moves are modest though, with fairly limited news flow and a still light data calendar. Japan markets are also out today, which may be impacting liquidity. This also means no cash US TSY trading in the Asia Pac time zone today. 

• Headlines crossed earlier from the WSJ around likely tariff reprieve for the US auto sector. They appear aimed avoiding stacking - so that the sector won't have to pay additional tariffs like those on steel, aluminium etc. We did see headlines cross last week around auto tariff relief, so the market may not be that surprised by the announcement.
• US equity futures opened weaker, but sit a touch higher in latest dealings. There was little headline reaction to the auto tariffs story from the WSJ.
• Late in US trade on Monday, headlines crossed that US Tsy Secretary Bessent would like to pass Trump's tax cut package by July 4 (see this BBG link). This comes amid signs of softer economic sentiment, highlighted by the slump in the Dallas Fed survey on Monday.
• USD/JPY sits up a touch last near 142.15, while USD/CHF was at 0.8220. AUD/USD is little changed at 0.6425/30, outperforming NZD at the margins, which was last at 0.5960/65.
• We had NZ jobs filled data earlier showing a tick up, but NZD sentiment was shifted. Assistant RBA Governor speaks later, but on external shifts and FX markets, which is unlikely to touch on monetary policy. 

A strong bounce late in US stocks off their lows has seen the AUD/USD push back above 0.6400, can it hold it this time ? The crosses continue to trade sideways. (Bloomberg Economics) -- Australia’s first-quarter CPI report due tomorrow is likely to show inflation easing further below the midpoint of the Reserve Bank of Australia’s 2%-3% target band. Microsoft and Meta will headline earnings on Wednesday, followed by Apple, Amazon, and Eli Lilly on Thursday, these reports should hopefully provide the market with some clarity and will dictate whether this bounce in risk is able to continue or falter.

• EUR/AUD - Overnight range 1.7712 - 1.7817. Asia is trading around 1.7760, support is seen in the 1.7600/7700 area.
• GBP/AUD - Overnight range 2.0784 - 2.0920. Asia is trading back around 2.0910. Good support around 2.0600/2.0700 continues to hold as the market tries to put in a base from which to move higher again.
• AUD/JPY - Overnight range 91.21 - 91.95, Asia is trading around 91.35. AUD/JPY failed once more towards 92.00, how stocks react to earning later this will have a direct bearing on this pair.
• AUD/NZD -  Overnight range 1.0730 - 1.0769, the cross is dealing in Asia around 1.0773 as the NZD struggles to make gains above 0.6000. The cross has finally seemed to find some support towards 1.0650, bounces back towards 1.0800/50 should find supply first up.

Fig 1: AUD/NZD spot Daily Chart

Source: MNI - Market News/Bloomberg