CHINA PRESS: China SME Index Upturn Shows Economic Recovery

Today Australian PM Albanese and US President Trump discussed the possible exemption of Australia from the just signed 25% tariffs on US imports of steel and aluminium to take place on March 4. Trump mentioned this exclusion as an option when he signed the order, which currently doesn’t include any “exemptions”. The US is not an important trading partner for Australia as a whole and vice versa.

• Australia may get an exemption from the current tariffs and avoid being targeted as it is one of the few countries that the US has a surplus with, it accounts for only 0.5% of US imports and 2% of aluminium imports and less than that for steel.
• Australia’s 0.5% of total US imports is dwarfed by 12.6% coming from Canada, 15.6% from Mexico, 18.6% from the EU and 13.4% from China – the ones being targeted by universal tariffs.
• The US trade surplus with Australia rose slightly last year to US$17.9bn from US$17.6bn. It has increased in each of the last four years and is up almost $9bn since 2020. 

US trade deficit US$bn 12mth sum

• Australia is way more vulnerable to a reduction in demand from China whether due to its own structural problems or the impact of the US’ universal 10% tariff. While exports to the US rose to 4.6% of the total in 2024 from 3.7%, to China they were 34.5%.
• Australia is a large LNG exporter and may benefit from increased shipments to China following its 15% tariff on LNG imports from the US. Oil & gas accounted for 15.5% of Australia’s 2024 merchandise exports.

Australia merchandise exports by destination % total 2024

Source: MNI - Market News/ABS

ACGBs (YM +2.0 & XM +2.0) are slightly stronger after today’s confidence data drop.

• Westpac’s measure of consumer confidence was little changed in February rising 0.1% m/m to 92.2 as the positive effect of increased talk of a February rate cut following the Q4 CPI data was offset by global uncertainty and continued cost-of-living pressures. Consumers are not as pessimistic as they were in 2023 but confidence remains negative about current conditions but is improving regarding the outlook.
• NAB January business confidence picked up to +4 from -2, its highest in three months. The series has been oscillating around the zero mark for around two years. Conditions moderated further to +3 from +6, in line with the November outcome. The price/cost components remained elevated but below cycle highs and labour demand is above the 2024 trough.
• More data painting a mixed picture ahead of the RBA’s February 18 meeting.
• Cash ACGBs are 2bps richer.
• A reminder that there will be no cash trading in Asia-Pac today with Japan out for the Foundation Day Holiday. TYH5 is little changed.
• Swap rates are 2bps lower.
• The bills strip is flat to +2 across contracts.

• The PBOC issued CNY33bn of 7-day reverse repo at 1.5% during this morning’s operations.
• Today there were no maturities.
• Net liquidity injection CNY33bn.
• The PBOC maintains and controls liquidity through the issuance of 7-day reverse repo.
• The CFETS Pledged Repo Deposit Institutions 7 Day Index continues to decline down this morning to 1.50% (from 1.8038% yesterday)
• China’s overnight interbank repo rates are at 2.00% this morning (from 1.50% yesterday) and the 7-day interbank repo rates are at 1.30% (from 1.80% yesterday).