News

ANZ’s monthly job ads survey was released showing ads were down 1.2% s.a. compared to January but up 8.2% from February, 2015. The comparable January figures were +0.9% and +10.8% respectively. Internet ads were down 1.6% for the month (+8.7% for the year) while newspaper ads rose 6.9% (-10.7% for the year). Advertising through newspapers is now close to non-existent and just a small percentage of internet advertising.

ANZ’s Justin Fabo described the result in terms of the job ads series as having “lost momentum so far in Q1” while ANZ thought the results may have reflected business uncertainty amid financial market volatility and negative economic news in February. ANZ chief economist Warren Hogan said, “Overall, the weaker trend in job advertising supports our view that hiring is slowing”. He advised future surveys should be watched closely given the doubts surrounding ABS employment numbers.

Readers will be familiar with Credit Union Australia (CUA) through YieldReport’s term deposits pages. Typically credit unions raise funds via term deposits and then lend those funds for home and personal loans. However, from time to time, they will go the wholesale markets for funds, which is what CUA appears to be about to do. The credit union will be meeting with Australian investors in what is likely to be the prelude to a capital raising. CUA’s last foray into the bond markets was in 2014 when it issued $50 million December 2017 FRNs at BBSW + 120bps. FRNs seem to be in vogue at the moment, perhaps due to current investor demand for floating rate instruments, which itself may be a symptom of investors’ views of interest rate movements in the medium term. CUA has a BBB+ rating from Standard & Poor’s and an A3 rating from Moody’s.

BHP had its credit rating cut from A1 to A3 by Moody’s Investor Services with a negative outlook. Despite changing its ‘”progressive dividend” policy at the recent half-yearly results and slashing its dividend, Moody’s expects the credit metrics from the company to stay “substantially weaker” in coming years.

The move to cut the rating is in contrast to Standard & Poor’s decision to affirm its ‘A’ rating on BHP.  An ‘A’ rating from S&P on long term debt is equivalent to an A2 rating from Moody’s. An ‘A3’ rating by Moody’s is the equivalent of an ‘A-’ rating from S&P.

Moody’s therefore seems to be much more bearish on the outlook for BHP than does S&P.

Commonwealth Bank is preparing to resume its Medallion Residential Mortgage Backed Security programme, and is to be a three tranche affair worth $750 million. The first of the Medallion programme for 2016, it will be considerably smaller than the $2 billion RMBS offering at the end of August, which also comprised three tranches. This time the Class A notes will be split in tranches which either offer a spread over 1 m BBSW or 3m BBSW.

The previous Medallion RMBS issue was in August 2015 and was for $1.84 billion at BBSW + 90bps.

[Updated 7 March] The $1.6 Billion Medallion RMBS issue was priced at BBSW + 140bps.

More gloom for Woolworths Ltd as its credit rating was lowered by Moody’s this week. Last week the company released its half-yearly results that were poor as expected. It wrote down its investment in the Masters business and it is suffering from a bitter retail war with arch-rival Coles. The rating was lowered one notch to Baa2, 2 steps above junk bond status and reflecting the challenges being faced by the new CEO Brad Banducci. Woolworths reported a loss of $973 million for the six months ended 31 December compared to a profit of $1.28 billion a year earlier.

Australian GDP figures have rocketed up in Q4, according to figures released by the ABS today.  Seasonally adjusted GDP growth in the December quarter was 0.6%, a figure which surprised economists who were generally expecting 0.4%. The Australian economy grew by 3.0% on a year-on-year basis, again much higher than the 2.5% expected by economist and the RBA in its February Statement on Monetary Policy (SoMP). To add to this overall picture of economic strength, Q3 was revised up from 0.9% to 1.1% meaning growth in the second half of 2015 was a healthy 3.5%.

The figures paint a better picture of Australia’s output than has generally been realised although it was driven by household consumption. Australians spent more of their income in this last quarter, saving less as shown in the diagram below. It shows how the savings ratio, the ratio of savings as a percentage of income, is now the lowest since the onset of the GFC. With wages growth negligible an explanation might be the wealth effect of higher house prices that is giving people the confidence to spend. This may not be a sustainable situation.

The currency market reacted by sending the Aussie up by half a cent against the USD, a sign it expects the current economic strength to translate into higher future interest rates, while the local bond market sent 10 year bond yields up 2bps.

Here’s what the economists said:

Alan Oster, National Australia Bank chief economist

“The service sector is very strong…What you’ve got is a restructure in the domestic economy that is showing greater flexibility and adjusting from the mining-led part of the economy.”

Su-Lin Ong, RBC Capital Markets senior economist

We’ll have a look at the details but it looks like activity was running a bit firmer than even the RBA’s own forecast. But, we would argue that the more recent data and the more timely numbers are showing some moderation in a couple of key areas. We doubt there is as much momentum in early 2016 and we still think the risk is for further easing.

Savanth Sebastian, CommSec economist

Despite some perceptions to the contrary, the Australian economy is doing well. Certainly this isn’t an environment in which the Reserve Bank would be looking to cut rates, and perhaps, it results in policymakers removing the easing bias in coming months. Even more encouraging, the result was broad-based with household consumption, public investment and government consumption all contributing to the growth story.

Moody’s cut China’s rating outlook from stable to negative on the back of rising debt levels, falling currency reserves and question marks about the ability of authorities to carry the needed reforms. It affirmed the countries long-term rating of Aa3, the same rating as Chile and Taiwan.

There must be something special happening in Singapore this week because Lend Lease has announced it will be meeting investors there this week to provide an update to bond holders. These sorts of meetings are typically held to sound out investors’ willingness to stump up funds for the company and what terms the investors may find acceptable under current market conditions. Normally these sorts of roadshows are run of the mill but Lend Lease’s one will come hot on the heels of AusNet’s hybrid issue of just a few days ago, which coincidentally was also in Singapore.

The Fire Brigade Employees Credit Union has signed a memorandum of understanding (MOU) with Teachers Mutual Bank to merge the two credit unions. A merger cannot take place without the more than 7,200 FBCU members agreeing to the proposal and the proposal is expected to be put to FBECU members for a vote in the middle of this year after due diligence and regulatory approval from APRA.

The FBECU has in excess of $210 million in assets and the Teachers Mutual Bank is one of the largest mutual banks in Australia.

It is the intention to retain the FBECU brand and continue to market the two credit unions separately although it is understood there will be meaningful savings associated with the streamlining of administration and reporting.

Argentina has reached an in-principle agreement with US based creditors to settle the long running litigation that may allow Argentina to return to international capital markets.

YieldReport readers will recall how Argentina defaulted on government bonds in 2002 and the debt was subsequently bought by a range of US ‘vulture funds’ that typically buy debt for a few cents in the dollar in the hope they can get a significant amount of the face value of bonds bought back. The funds bought the Argentine government debt and immediately began pursuing them for a full repayment.

The government had previously done deals for other debt holders, many of whom are Argentine citizens, but the funds used the US courts to strike those deals out, arguing that all debt holders must be treated equally. To simplify was has become an increasingly complex deal a recent an offer to pay 75% of face value on the bonds was accepted by the four largest “holdout funds”, as they became known. The “holdout funds” had agitated for a higher amount and some are not parties to this latest arrangement, which leaves the 2014 injunction in place where no one receives principal or interest payments until all creditors are paid at the same time.

The Argentine government for its part, is keen to re-enter the international capital markets to source new debt and invest in its economy.

The new agreement has a number of hoops to go through before being fully settled but the signs are encouraging. Interested readers can view our previous story to get a fuller picture of the saga.