FOREX: JPY Crosses - GBP/JPY Marked Lower

Jim Biance posted a thread on X on why the risk is that long-term rates go higher: “Polymarket recession odds peaked at 65% on May 1st, the April ISM release date, suggesting Liberation Day and the 20% stock market correction did not damage the economy, as the "soft data" warned. Subsequent April data confirmed this. Will May see more of the same?”

• “The prevailing narrative in the market for months has been that the labor market is going to fall apart, forcing the Fed to cut rates. This has not happened, and so far, the "soft" (survey) data have been wildly off in predicting the economy.’
• “ISM Employment upticked in May from April.  The first monthly "May" data point suggests the labor market is still not weakening.”
• “ISM New Orders are included in the Index of Leading Economic Indicators (LEI). They slightly increased in May compared to April. In other words, this component of LEI is also NOT slowing.
• “This series, along with the release of construction spending today, pushed the Atlanta Fed's GDPnow to an eye-popping 4.6%.”
• “No way an organization worried about its reputation is going to cut rates if we're pushing towards 5% Q2 GDP. The market views it this way. The June 18 FOMC has only a 5% probability of a cut, or 95% of no move. July 30 is just 21%, or 79% of no move.”

• “Long rates are already in an uptrend (below). Throw in a rate cut with a 5% GDP growth, and the risk is that long-term rates soar, damaging the Fed's reputation.”

  Fig 1 : US 30-Year Yield Weekly Chart

  

  Source: MNI - Market News/Bloomberg

Not only was the current account deficit larger than expected but Q4 was revised significantly wider, but that meant that it narrowed in Q1. It was $14.7bn in Q1 after $16.3bn in Q4. Net exports detracted 0.1pp from growth while the 0.2pp contribution in Q4 was revised down to a 0.1pp detraction. 

• The Q1 improvement in the current account was due to a smaller net income deficit as lower coal prices resulted in less dividends paid to overseas investors. The primary income deficit narrowed $2.2bn to $19.4bn.
• The goods & services surplus narrowed $0.2bn to $5.2bn due to a widening in the services deficit. Exports rose 1.9% q/q while imports picked up 2.2% q/q. 

Australia current account $bn

Source: MNI - Market News/ABS

• Goods exports rose 2.9% q/q but were down 2.4% y/y. The quarterly increase was driven by non-monetary gold (volumes & prices rose) and rural goods, while non-rural posted its fifth consecutive quarterly decline. Services fell 1.7% q/q but were up 7% y/y.
• The ABS noted that the Q1 shipment of gold to the US was larger than the total of the last four years, as producers aimed to beat US tariffs. Excluding gold, total goods exports would have declined 1% q/q due to disruptions to coal production and lower prices.
• Merchandise imports were up 3.1% q/q & 2.7%y/y with consumer goods +0.3% q/q and intermediate +7.1% q/q, due to a pickup in fuel prices, but capital down 1.1% q/q, consistent with weak investment. Services fell 0.5% q/q as overseas travel became less popular.
• The terms of trade appear to have stabilised with Q1 +0.1% q/q, second straight increase, to drive an improvement in the annual rate to -4.0% from -4.6%. Export prices rose 2.8% q/q with both goods and services higher, while import prices increased 2.6% q/q driven by goods with services little changed.

Australia terms of trade indices

Source: MNI - Market News/ABS

*JAPAN 10Y GOVT BOND AUCTION MAY HAVE 98.95 LOWEST PRICE: POLL– BLOOMBERG