ABX Weekly 15/04/2020

Market Update  

 

Global financial markets continue to recover from the near meltdown a couple of weeks ago. The hope that we have reached some sort of peak of the pandemic combined with the massive capital injection from both Governments and Central Bankers has stabilised the situation for the time being.  

There is still much work to be done before we can even talk about some sort of normalisation and yesterday’s massive cash injections by China’s Central Bank is a good example. The Central Bank of China has cut interest rates again and also injected $US14 billion into the financial system. Furthermore, they cut their one-year medium-term lending facility from 3.15% to 2.95%, pushing 100 billion yuan into the economy.  

In the US, the Federal Reserve stated that it is willing to upsize and extend the eligibility criteria of its Primary Market Corporate Credit Facility from US$200bn to US$750bn which means that they are able to buy not just investment grade bonds but also higher risk credit in particular to support liquidity in the market. This should strongly help and support the Fixed Interest ETF market which has been struggling to off load their holdings. 

In some other major news OPEC has agreed to the largest oil production cuts in history on Thursday, but despite this, the oil prices weakened again towards $20 as markets decided that a 10 million bpd cut was insufficient to balance the demand collapse. Analysts say cuts are too little, too late and they don’t prevent the build-up of some massive stock builds over the next couple of months. The low oil price on the other hand will help the consumers which have to spend less money filling up their cars and should put further negative pressure on inflation for the time being. 

In Australia, the massive waive of corporate restructuring and refinancing continues with daily news of some massive deals. Some of the examples of recent deals are the $1.2bn plus capital raising by insurance giant QBE and the surprising news from annuity provider Challenger of a massive restructuring of their investment portfolio together with a possible $500 million plus equity offer. All this capital raising and refinancing of course is excellent news for bond holders as balance sheets getting a much-needed boost and a clear demonstration that financing channels are open which is in stark contrast to the GFC experience ten years ago.