AUSSIE BONDS: ACGB Dec-30 Auction Result

• China retaliated in the trade war yesterday as Beijing announced tariffs on energy imports, oil, agricultural equipment, announced key US companies were to be place on a blacklist and that Google were to be investigated for anti-trust violations.
• Whilst the tariff news was brushed off by many equity markets, the USD weakened, giving room for gold to rally.
• Having hit new on Monday, gold’s good run continued reaching yet another all time high.
• Gold had closed Monday night at US$2,815.21and was range bound in early trading before rallying hard into the second part of the trading day reaching a high of $2,845.35, and closing at $2,842.71.
• Gold enjoys ‘safe haven’ status as an asset, and investors typically buy it in volatile times.
• Equally gold performs well in a rate cutting environment or times when the USD weakens, as seen overnight.
• The day ahead for gold will ebb and flow on any new headlines on tariffs.
• With China back today for the first time since the Lunar New Year holiday, the likelihood of further reactions or announcements remains high. 

Japan Dec labor earnings data was mostly better than forecast. The headline nominal earnings rose 4.8%y/y, versus 3.7% forecast and a revised 3.9% gain In Nov. Real earnings rose 0.6%y/y (-0.1% was the forecast, Nov rose a revised 0.5%). Cash earnings on a same sample base rose 5.2%y/y, versus a 3.6% forecast, the prior was 3.7%. Scheduled full time pay rose 2.8%y/y, versus 2.8% forecast and 2.7% prior. 

• The chart below plots the various earnings measures over the past decade in y/y terms. The top panel is nominal earnings (orange line) and real earnings (white line). Real earnings are trending firmer but below earlier 2024 cycle highs. Nominal earnings though hit a fresh cycle high.
• The bottom panel is cash earnings (green line) and base pay (pink line) on the same sample basis. Base bay didn't show the same degree of upside surprise but is running at close to 3% y/y.
• Some of the detail is perhaps not as strong as these headline beats suggest, albeit at the margin. Bonus payments were up 6.8%y/y, after a 24.9% gain in Nov. Hours worked also remained in negative y/y territory at -1.1%.
• Still, the trends should be encouraging from a BOJ standpoint and reinforce the Jan hike decision. Further real wage gains this year are seen as critical for underpinning a broader consumption recovery, which will be important to support economic growth and maintain a positive wage/consumption/inflation cycle. 

Fig 1: Japan Dec Earnings Beat Forecasts    

Source: MNI - Market News/Bloomberg 

Oil prices trended lower over most of Tuesday on global growth concerns from a trade war but then jumped following US President Trump signing a directive to increase pressure on Iran, which is likely to mean tighter enforcement of sanctions on its oil exports. The USD fell 0.7%.

• WTI fell to a low of $70.67/bbl, below the 50-day EMA at $72.30, before the statement on Iran. It then bounced to $73.35 on the news. The benchmark was still down 0.6% on the day at $72.75. It has started today’s trading slightly lower at $72.65 following data showing a large US stock build.
• In contrast, Brent finished up 0.3% to $76.20/bbl yesterday. It fell to a low of $74.15, below the 50-day EMA at $75.49, before jumping to $76.66. A clear break below the 50-day EMA, would signal scope for a greater sell off. Initial resistance is at $78.80 and the bull trigger at $81.20.
• Lenient enforcement of existing sanctions on Iran has allowed it to increase crude exports by around 1mbd over the last four years, according to Bloomberg. Stricter enforcement could reduce Iran’s oil exports by around two-thirds.
• Bloomberg reported that US crude inventories rose 5.025mn barrels last week, according to people familiar with the API data. There has been a sharp increase in flows from Canada to the US to beat the imposition of tariffs. In terms of products, gasoline rose 5.426mn while distillate fell 7mn. The official EIA data are out later today.
• 10% tariffs on US imports from China came into effect on Tuesday and China retaliated including 10-15% tariffs on oil, coal, LNG and agricultural machinery imports from the US. The US averaged exports of 250kbd of crude to China in 2024, according to Bloomberg. China’s oil demand continues to worry the market.