ABX Weekly 12th September 2018 Market update

  • The S&P is still flirting with all-time highs as the index remains in a bullish channel still within cooee of all-time highs. With no sign of exhaustion, it seems the only way is up…. for now. But I am getting nervous!
  • We have seen good buy flows in CNI 2021, NXT 2021, SYDAIR 2030 with inventory running low due to demand. We have sold out of the rare SYDAIR 2030s with still demand for more.
  • Investment Grade Corporates continue to borrow at extremely low levels. Today’s example is Westpac launching a 1yr bond pricing at 3m BBSW +0.37%, yielding roughly 2.30%

Focus on AUD:

AUD/USD sellers drove the Aussie to new 2018 lows last night to 0.7085. The catalyst being reports emerging that China had asked the World Trade Organisation (WTO) for authorisation to impose trade sanctions against the United States. With many technical measures reading oversold either a consolidation phase or correction to as high as 0.7200 may ensue. A sustained bear breakout below 0.7085 would invalidate this scenario.

With the RBA seeming to be stuck with not much option to raise rates and with the rest of the world having a tightening bias it would seem prudent be in sell AUD rallies for now.

If AUD/USD gets anywhere near 0.6800, which I favour. Holders of USD bonds or cash might consider switching into or buying some AUD denominated bonds for a potential double whammy. Earning a safe 5+% ytm + currency appreciation.

European Desk:

Well our colleague Markus Meuller has headed to Switzerland to meet investors there. Watch for a spike in their GDP as Markus does some duty-free shopping. Across the other side of the Swiss Alps, Italy’s Finance Minister commented over the weekend that the government knows they need to cut debt and keep the budget deficit under control. Italian yields fell 10–18bps on the comments. EU Brexit negotiations continue and both the GBP and EUR rose on a suggestion that Britain’s withdrawal from the EU is realistic and possible by November. Markets are watching as these events unfold.

ABX Colour:

Three out of the four major banks have lifted their variable mortgage rates citing higher funding costs for them. Even though the RBA will keep rates steady for the foreseeable future this will have an impact on availability of home loans and thus property prices. Our analysis shows there has been a turn in risk sentiment where investors are diversifying their portfolio to protect them against a downturn in the property and share market.

Given the expense of housing some of our clients are buying bonds issued by property related entities because it gives them exposure to the property market even though they may not be able to enter the property market directly yet. It’s a good strategy for boosting your house deposit savings because of the interest you can earn on the bond you’re holding while still reaping the benefits of being exposed to property.

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

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Mortgage rates are rising though bond market still as profitable as everABX weekly 12/09/2018

 

ABX weekly market insights

 

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