ABX weekly 12/12/2018

12th December 2018

Market update 

Recent themes continue in markets with the risk-off tone becoming entrenched. US-China trade tensions remain and the arrest of Huawei’s CFO Meng Wanzhou by Canadian authorities at the request of the US counterparts adds to the friction. There is speculation that China could retaliate. Uncertainty over the US Fed policy is also weighing on markets. The next FOMC meeting is Thursday 20th December, but traders are concerning themselves less with Fed-hikes and more with the US and global long-term growth prospects. Overnight US Treasury yields ticked-up across the board: the US 10 Year note is yielding 2.86% and the 2 Year note is yielding 2.77% while in Australia 10 year government bonds are yielding 2.46% and 2 year yield 1.96% at the moment. US equities yo-yo day to day as they open, have a rally or fall, then a retracement or recovery. US politics is also adding noise with President Donald Trump raising the prospect of a government shut-down if funding for his contentious border wall wasn’t passed by Congress.

Theresa May decided to delay the Brexit withdrawal agreement vote in the UK parliament given the expected defeat. It has become clear that the government is in disarray and there is increasing speculation of a general election with some calls for May to resign. In the short term, economic uncertainty has risen sharply and GBP will remain under downward pressure. The UK’s sterling plunged 1.3% to its lowest level in 18 months. In Europe, protests and social unrest have spread from France to Belgium and now the Italian government are warning that if the EU demand too severe budget concessions that it could spark unrest their too.

In Australia business confidence numbers were released on Tuesday and revealed softening sentiment. The AUD is struggling to hang on at around USD0.72. The AUD closed weaker, as poor risk appetite once again dominated price action. With few domestic offsets this week, the AUD is likely to remain at the mercy of overseas data and headline grabbing events.

European Desk

I thought I start this week with some good news out of Europe as they are very rare in this environment. Preliminary data of Germany’s manufacturing orders (the engine room of Europe’s economy) increased unexpectedly, with factory orders ticking up 0.3% from September (expectation was for a fall of 0.4%) while foreign orders were up 2.9%, with domestic orders slipping 3.2%. In addition, the German Construction PMI was up to 51.3 in November which is a shift back into the expansion territory following a reading of 49.8 in October.  What did this do to the bond market or the Euro – not much and maybe the positive news was that despite Brexit and riots in Paris it seems to be priced in already….

   

ABX Colour

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Market Movements

ASSET CURRENT 1 Week change
Aus Cash Rate 1.50 0.00
3M BBSW 1.99 0.04
Aus 3yr Gov 1.92 0.16
Aus 3yr Corp 2.50 0.03
Aus 3yr HY 5.32 -0.04
US 10yr bonds 2.86 -0.14
AUD 0.72 -0.01
S&P 200 5681 14.33

ABX Bonds of interest

Name Issuer Type Maturity Coupon
QMS Media Fixed 2022s QMS MEDIA LTD FIXED 21-Nov-22 7.00%
NextDC Fixed 2022s NEXTDC LTD FIXED 9-Jun-22 6.00%
Dicker Data FRN 2020s DICKER DATA LTD FLOATING 26-Mar-20 3M BBSW +4.4%
Centuria Fixed 2021s CENTURIA CAPITAL 2 FUND FIXED 21-Apr-21 7.00%
Centuria FRN 2021s CENTURIA CAPITAL 2 FUND FLOATING 21-Apr-21 3M BBSW +4.5%
NextDC Fixed 2021s NEXTDC LTD FIXED 9-Jun-21 6.25%

Figure 1 (Source: ABX)

There has been significant demand in the above names. We continue to build interest in these names and others.