AUSSIE BONDS: Nov-29 Supply Goes Well With Very Strong Demand

Japan's January trade figures were mixed. Exports rose 7.2% y/y, close to the 7.7% forecast and up from the prior 2.8% pace. Imports surged though to 16.7%y/y, from 1.7% in Dec and against a 9.3% forecast. Not surprisingly, this drove weaker than forecast trade balance outcomes. The headline deficit was -¥2758.8bn, versus a ¥132.5bn surplus prior. In seasonally adjusted terms, the deficit was -¥856.6bn, versus -¥221.0bn prior. 

• Exports were still down -2.0% in m/m terms. The y/y rise in exports puts Japan a little out of line with other NEA export orientated economies. These economies saw slower y/y momentum for Jan. Exports to China fell 6.2%y/y, and down 15.1% to the EU, but rose to the US 8.1%. The trade surplus with the US was down from Dec's level, falling by more than half.  
• In volume terms exports were down 1.7% y/y, compared to Dec's pace of -2.6%.
• Import volumes were much stronger up 8.7% y/y. This is the strongest pace since 2021 in y/y terms. Import volumes were positive in y/y terms from all key regions, including the US (+2.4%), which could be an ongoing focus point as countries look to avoid tariff penalties from the US (by purchasing more from the US).
• It may also signal a firmer domestic demand backdrop. The chart below overlays import volumes y/y versus y/y real GDP growth. Import trends tend to volatile though (the white line on the chart)
• The weaker trade deficit position unwinds a modestly improving trend we saw through Q4 last year.  

Fig 1: Japan Import Volumes & GDP Y/Y 

Source: MNI - Market News/Bloomberg 

The AOFM sells A$800mn of the 2.75% 21 June 2035 Bond, issue #TB145:

• Average Yield (%): 4.5607 (prev. 4.4684)
• High Yield (%): 4.5625 (prev. 4.4700)
• Bid/Cover: 4.1437x (prev. 4.0000x)
• Allotted at Highest Accepted Yld as % of Amount Bid at that Yld (%): 56.6 (prev. 64.5)
• Bidders: 41 (prev. 40), successful 16 (prev. 15), allocated in full 9 (prev. 9)

Westpac’s leading indicator for January rose 0.12% m/m after falling 0.02%. The 6-month annualised rate, which leads detrended growth by 3 to 6 months, rose 0.58% up from 0.24% and the fastest pace since July 2022. Thus the lead index is signalling that growth should gradually improve over H1 2025. Westpac notes that “momentum is becoming more convincing” as the 6-month rate was positive for the fourth straight month. The pickup in the leading indicator was broad-based.

• Westpac is forecasting growth to improve over the year reaching 2.5% y/y by end-2025 compared with 0.8% y/y in Q3 2024.
• The monthly rise in the index has been driven by stronger building approvals, more consumer optimism, lower rate expectations plus commodity prices have stabilised. In terms of the 6-month rate, over half of the improvement since July is due to commodities but consumer components have also made a significant contribution.
• With growth expected to gradually recover, Westpac believes that inflation and the labour market are likely to determine any further rate cuts, which it expects will occur over the year but there’s unlikely to be a back-to-back reduction on April 1.

Australia Westpac lead indicator 6m/6m annualised %