ABX Weekly 15th August 2018 Market update

  • The US stock market has had a good week with the S&P index 40 points shy of an all-time high with the Australian market gyrating not far behind
  • We have seen good buy flows in CNI 2021, NXT 2021, SYDAIR 2030 and would happily buy back DDR 2020 FRN from accounts that are looking to raise cash
  • Yesterday Centuria Capital Group announced their F18 results with Assets under management up 29% to a new peak of $4.9 billion and Net operating profit after tax was $45.1 million, up 191%. We have a small amount of Centuria fixed coupon 7% 2021 bond
  • Investment Grade Corporates continue to borrow at extremely low levels. Today’s example is Commonwealth Bank that issued 3yr and 5yr bonds yielding at 2.86% and 3.25% respectively

Macro comment:

The following factors were impacting bond pricing this week:

  • US 10yr treasury yields dropped to 2.90%, subdued inflation results. Low wage inflation and some unexpected weakness in German factory orders were enough to keep bond investors sanguine
  • All eyes on Turkey, see more from our European desk below

Focus on AUD:

With the risk off theme after the Turkish Lira devalued up to 40% since last week the AUD was not immune with contagion fears griping the market and tumbled 2 big figures to currently 0.7240. That, with a middling economy and sluggish growth metrics little can be found to excite the bulls as interest rate divergence between the Aussie and the Greenback continues to widen.

The AUD is on pace to close lower against the USD for a sixth month out of seven. Today we have the Westpac Consumer Confidence number and Wage Price Index, however Aussie bulls are likely to be unmoved unless there is an unexpected pickup in the latter, which could see a sharp knee jerk rally with technical indicators oversold. Otherwise the market awaits the Australian jobs report tomorrow.

Swiss Desk:

The crisis in Turkey is the most immediate test of financial market confidence. The depreciation of the Turkish Lira continued its course and the flight into safe haven currencies affected other EM currencies. European financial markets are also implicated as Spanish, Italian and French banks are heavily exposed to the Turkish market. The European banking index lost 6% in August. The EUR depreciated and safe haven currencies such as USD, CHF and JPY gained in value (CHF gained around 2.5% against the EUR within the last week).

ABX Colour:

Greater scrutiny from the aftermath of the Royal Banking Commission as fund managers and banks being questioned on their fee charging practises. With regulators putting more emphasize on “client’s best interest”, knowing exactly what you’re investing in has been on the rise. Seeing a lot of flow into direct bonds as investors want more transparency and less fees.

Ask your ABX representative how to have more control on your investments on +61 2 8076 9343.

Visit our website https://www.bondexchange.com.au/ for more articles.

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Turkish delight or Turkish worries?

Find out hereABX weekly 15/08/2018

 

ABX weekly market insights

 

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