AUSSIE BONDS: Light Calendar, Narrow Ranges, Twist-Steepener With US Tsys

Markets have become increasingly concerned over the global growth outlook with signs that US confidence has been hit by uncertainty over US tariffs and likely retaliation. The RBA’s Hauser said that the Fed estimated that global growth was reduced by 1pp in 2019 due to uncertainty alone. Growth indicators are still suggesting that global IP should hold up for now. They continue to be at subdued levels though in line with recent muted growth, but are yet to flash red. 

• The Q1 average of JP Morgan’s global composite PMI at 51.7 is below Q4’s 52.4 driven by services signalling slower but still positive growth. February’s composite was the lowest in over a year at 51.5. Manufacturing though has seen a pickup in Q1 but it is too early to tell if this is an attempt to front run US tariffs. China’s manufacturing PMI is down slightly in Q1 at 50.5.
• LME metal prices have been moving sideways for the last year and picked up at the start of this year but within the recent range. This is in line with continued global IP growth of around 2-2.5%. Iron ore has also been moving sideways, while wool has been recovering over the last 6 months.

Global IP y/y% vs LME metal prices

Source: MNI - Market News/Refinitiv

• Global money supply growth has been in a relatively tight range for the last two years. It tends to lead global IP growth and is also consistent with it staying positive but at subdued rates.
• Container freight rates have been trending lower since end-2024 with the easing in geopolitical tensions but the Baltic Freight Index has been recovering but remains off 2024’s highs.

Global IP vs money supply growth y/y%

Source: MNI - Market News/Refinitiv/Bloomberg

JGB futures are weaker, -35 compared to settlement levels, after dealing in a narrow range. 

• Several headlines have filtered out today on pledged wage rises from major Japanese firms for 2025. Some companies have met lofty demand, while others have come in a little below demands.
• This is a key watch point for the authorities and the BoJ, as it seeks to durably achieve the 2% inflation target.
• The BoJ's board will set policy next week, with economists expecting no move this month, but anticipating a terminal rate of 1.25% in this cycle.
• Cash US bonds are flat to 2bps richer. The February CPI report is the highlight of today’s US session, while some attention will be paid later in the morning to the Bank of Canada which is expected to deliver a 25bp cut.
• Cash JGBs are 1bp richer to 3bps cheaper across benchmarks, with the 20-year outperforming after today’s supply. The 20-year auction delivered mixed results. The low price underperformed dealer forecasts. However, the cover ratio increased to 3.4594x and the auction tail shortened dramatically to 0.20 from 0.55.
• Swap rates are 1-2bps lower, with swap spreads tighter.
• Tomorrow, the local calendar will see Weekly International Investment Flow data. 

Asia Pac equity market trends are mixed in Wednesday trade. We have seen higher trends for some of the tech sensitive plays. The South Korean Kospi is up around 1.5%, while the Taiex is also +1% firmer. In Japan, the Topix is up around 1.00%, but the NKY is up more modestly. 

• Comments from US President Trump at a business roundtable on Tuesday around economic growth and downplaying recession fears, has aided risk appetite. US equity futures are firmer, led by Nasdaq, but Eminis remain sub 5600 at this stage, so still close to recent lows.
• Australian  markets are underperforming though, the ASX 200 off 1.4%. Australia failed to win a reprieve in terms of steel and aluminum tariffs placed on Australian exports to the US. Some miners are lower, but so too are some finance companies. The material sub index is off close to 1%, while the finance sub sector is down by 1.6%, so slightly underperforming the headline moves.
• The ASX 200 is not back to levels not seen since August last year. We are close to 10% off recent Feb highs. See the chart below. The index is now in oversold territory though.
• Hong Kong markets have seen some volatility since the open, but the aggregate HSI is holding modestly lower at this stage, last off nearly 0.70%. The tech index is off a little over 1%.
• Mainland China markets are struggling for positive territory, but modest losses have been seen so far, with the CSI 300 down 0.30%.
• In South East Asia, most markets are weaker. Malaysian markets are down over 1.85%. Indonesian markets up are though. Singapore is close to flat. 

Fig 1: Australian Equities Nearly 10% Off Earlier Feb Highs 

Source: MNI - Market News/Bloomberg