ABX Weekly 8th August 2018 Market update

  • A strong week for US stocks was offset by weakness from Chinese stocks which also kept a lid on the All Ordinaries here in Australia
  • We have seen good buy flows in NXT 2021, SYDAIR 2030 and would happily buy back DDR 2020 FRN from accounts that are looking to raise cash
  • Dicker Data (DDR) has maintained their momentum from last week being awarded another two distribution contracts from DELL and Micron Technology.
  • Investment Grade Corporates continue to borrow at extremely low levels. Today’s example is Toyota Finance that issued a 2yr bonds yielding a meagre 2.75%

Macro comment:

The following factors were impacting bond pricing this week:

  • US 10yr treasury yields are little changed at 2.97%, despite the strong equity performance. Low wage inflation and some unexpected weakness in German factory orders were enough to keep bond investors sanguine
  • In Australia the money markets continue to dissect any communications from the RBA. The RBA is maintaining a very faint tightening bias in the face of lukewarm economic data. On Friday they release their Quarterly Statement of Monetary Policy
  • Globally the economic flash points of Turkey and Italy are re-appearing as a reminder that risks to the current goldilocks environment for risk assets can change very quickly

Focus on AUD:

Yesterday the RBA kept the cash rate unchanged for the 22nd consecutive meeting and has lowered its unemployment forecast. It remains to be seen whether this level will result in any meaningful wage pressure. The lift in funding costs continues to be downplayed by the RBA, this time noting that the average mortgage rate is lower than a year ago, providing little guidance to the implications. Consensus expects the cash rate to remain unchanged at 1.5% through to the 2nd half of 2019.

AUD/USD is trading at .7430 as I type after trading in a tight range after the RBA but then finding a bid in the
London session where there was with a sharp rebound in Chinese equities after reports emanating out of China
that the PBOC would be taking an active approach to prevent the Yuan falling below the 7.00 level against the
USD. With the US China tariffs in the spotlight, China Trade Balance figures will be closely watched today.

Any negative effect could sink the Aussie in the process.

ABX Colour:

From the August RBA statement we are given insight on their thoughts on inflation. They noted the recent inflation number was slight below expectation however not significant enough to alter their forecast.

With their continued expectation for higher inflation “the central forecast is forecast is for inflation to be higher in 2019 and 2020 than it is currently” but well within their 2%-3% band range.

Investors can capitalise on this uplift in future inflation by investing in inflation linked bonds today.

Ask your ABX representative how on +61 2 8076 9343.

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RBA continues its 22 month streak!

Find out how this can affect your money hereABX weekly 8/8/2018
 

ABX weekly market insights

 

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