Commonwealth Bank has priced $100 million worth of new 10.5 year bonds at Swap + 120bps, the same price as Westpac’s 10.5 year bond issued in the previous week. Commonwealth has been a rather active issuer recently, both domestically and offshore, having issued bonds in US dollars, yen, renminbi and Hong Kong dollars in the last month.
The Australian Bureau of Statistics released October retail sales figures which were a little higher than the market expectation of a 0.4% rise, rising a seasonally adjusted 0.5% for the month. The rise was higher than September’s 0.4% and driven by driven by furniture and appliance sales, as well as clothing and footwear. The cafes and restaurants segment which drove September sales, reversed direction and declined by 2.1%.
All states had gains in seasonally adjusted terms except for Western Australia where seasonally adjusted sales were stable. On a year-on-year basis, sales were up 3.9%, up from September’s annual figure of 3.7%.
Westpac summed up the sales growth rate as “sub-par, particularly given that retailers should be indirectly benefitting from the lower AUD’s boost to Australia’s tourism sector and a consistently more upbeat picture from private sector business surveys.” However, the bank points to recent positive consumer surveys and suggest the summer period “may see some better retail results.” Commonwealth Bank viewed the results in a more positive light. “The positivity in retail sales growth over 2015 is very encouraging because of the significant headwinds of weak consumer sentiment and weak household disposable income growth.”
AMP’s new Capital Notes 2 hybrid has a final issue size $267.5 million. The initial yield for the first quarter is the bank bill rate (2.27% pa) plus the fixed margin of 5.10% pa. The total yield includes a franking component of 85%, the same as AMP shares. Each quarter the yield will be reset based on the 90 day bank bill rate plus the fixed margin of 5.10%. The initial yield in the hands of investors works out to 5.4021% plus franking (at 85%) or around 7.37% grossed up.
The indicative distribution rate for the first distribution period ending on 22 March 2016 is 5.4021% pa. This is determined under the terms as follows:
For those confused about some of the terminology and yields on hybrids, an explanation can be found here.
This week we saw French unemployment hit a 20 year high of 10.6%. This contrasts starkly with Germany which has a record low of 6.3% unemployment. The divergence since 2008 is strong but this has been exacerbated since the election of the socialist Francois Hollande as French president in 2012.
Australian GDP figures for the third quarter came in just above expectations, growing by 0.9% and 2.5% year on year (both figures seasonally adjusted). Financial markets had been expecting 0.7% for the quarter and 2.4% for the year after taking into account recent data.
The second quarter’s sharp drop in export income was reversed as volumes picked up and even as prices for Australia’s commodity exports remain weak. Recently released trade figures days had indicated this and market expectations were adjusted in the lead up to the publishing of the GDP figures.
The bond markets reacted to the data release by marking 10 year bond yields down 4bps to 2.83% while the currency market initially sent the local currency higher before it tapered off over the rest of the day.
A snapshot of views from some well-known economists gives an insight into what this means for economic growth and interest rates:
NAB senior economist David de Garis
The result is within the range of expectations. The economy is growing back towards trend growth. It is growing at a slightly less than potential rate, but it is enough to create sufficient jobs to keep the unemployment rate steady. This must be in line with the RBA’s expectations and I don’t see how this could alter their forecast materially at all. Steady as she goes.
CBA senior economist Michael Workman
We see it as a pretty good result for the quarter, and also through the year. The big issue is still around this dramatic decline in mining investment and how it tends to distort the overall data. Household spending was up, net exports recovered very strongly. 2.5% growth in real terms is good.
UBS economist Scott Haslem
The domestic economy overall remains relatively weak, but is being depressed by a capex cliff (which appears likely to remain a large drag ahead); yet despite this, the moderately positive trends in consumption and housing remain intact. Nonetheless, amid a collapsing terms of trade, economy-wide ‘inflation’ & ‘real income’ are still falling. That said, looking forward, with RBA Governor Stevens saying Q3 GDP was “not a bad outcome” and “just a little below trend”, we continue to expect the RBA to hold rates in 2016
CommSec economist Savanth Sebastian
There is no question that the recovery across the national economy is patchy, but given the array of stimulatory factors, the latest result highlights that the economic landscape looks in far better shape than even a year ago. If there was any disappointment in the latest result it was that, as expected, business investment remains a drag on growth. Corporate Australia continues to hold back from significant investment and as such the growth outcomes over the next year will be patchy.
RBC Capital Markets senior economist Su-Lin Ong
It’s not a bad headline number but that was probably always likely. The composition of growth probably is still a bit disappointing with only modest signs of transition. The details are still consistent with the RBA’s easing bias and that sort of persistent sub-par activity suggests there is still a risk of easing next year. We have a rate cut pencilled in for the first quarter.
HSBC chief economist Paul Bloxham
Growth is clearly rebalancing in response to low interest rates and a lower AUD. Nonetheless, with growth now having been below trend for three years and commodity prices continuing to fall, inflation remains low. Although growth is lifting, the key question for the RBA is whether there is enough growth to keep inflation on target? A lower AUD would help. Otherwise, and despite the RBA’s considerable reluctance, another rate cut may be needed.
Following on from NEXTDC’s announcement in the middle of November regarding a debt capital raising, the company has announced demand was stronger than expected and oversubscriptions have been accepted, to the tune of an additional $30 million. The total amount of funds raised via the Notes II offer comes to $100 million and it was raised via professional and sophisticated investors, as defined under the Corporations Act, and was available in minimum parcel size of $50K.
Notes II will be direct, senior, unsubordinated, unsecured obligations of NEXTDC, subject to a “negative pledge”*. Noteholders will rank behind providers of senior secured debt facilities and any other secured creditors. The notes will be unrated and have a face value of $1000.
Readers will recall how the earlier article mentioned this latest series will have the same features as the notes issued in 2014 but it was uncertain as to how the early redemption feature would be accommodated. As it turns out, when the pricing was done, the coupon rate was set at 7%, lower than the 8% of the series 1 notes. And if the Notes are redeemed on the first call date in December 2016, noteholders will receive a bonus 1.50% extra on the face value. Should the Notes be redeemed on the second call date, a further 0.50% will be paid. If the company does not redeem the Notes on the next 3 call dates the bonus interest is upped to 0.75% per six month period until the final maturity date.
*A negative pledge means that you will not secure an asset to someone else without the agreement of the people you agree to give the negative pledge to.
Consumer prices are likely to have risen in November according to the latest reading of the TD Securities-Melbourne Institute Monthly Inflation Gauge. The indicator has been a good forecaster of the inflation numbers that are critical in determining interest rate policy and the latest data shows an increase in inflation of 0.1% over the month and an annual rate to November last year of 1.8%.
Head of TD Securities Asia Pacific research, Annette Beacher said, “While we will finalise our official CPI forecasts in January along with our December Inflation Gauge report, at this stage we see annual headline inflation running at a low 1.5%, and underlying inflation easing to 2.0%, in line with the RBA November projection.” She expected the RBA to leave rates unchanged at the December RBA meeting but sounded a warning about 2016. “We are of the view that financial markets are not sufficiently pricing the risk that the RBA cuts in 2016, with the trigger being further downside disappointment in inflation.”
Loans to the private sector again grew at a robust rate in October, in line with September’s growth rate. Figures released by the RBA showed loans made to businesses and loans made for housing were the drivers of the higher-than-expected figures, with total credit rising 0.7% for the month compared to the 0.7% revised figure for September. Total credit grew by 6.7% in the year to October, slightly higher than the revised figure of 6.6% for September.
Business loans, which accounted for 33% of all loan growth in the month, grew by 1.0%, down from the previous month’s 1.1% while housing loans which account for just over 60% of monthly loan growth, grew by 0.6%. Personal loans contracted by 0.3% in October, down from the 0.1% growth in September. In the housing component, “owner-occupier” housing grew at 0.7%, the same as September’s 0.7% while investor loans growth grew by 0.4%, down from September’s 0.5%. This brings the investor loans segment below an annual growth rate of 10%, which should please APRA.
The RBA made an indirect comment in the lower housing investor growth numbers in the release by saying referring to banks change in policy to investor loans. “Following the introduction of an interest rate differential between loans to investors and owner-occupiers a number of borrowers have changed the purpose of their existing loan; the net value of switching of loan purpose from investor to owner-occupier is estimated to have been $30.6 billion over the period of July 2015 to October 2015.”
Westpac noted how growth in the business loans segment had exceeded expectations which had been built on other available finance data. It also suggested Part of the strength in this segment came from what it termed a “valuation effect – the depreciation of the currency raises the Australian dollar value of existing foreign currency denominated debt”. All in all the bank now expects business credit growth to be about 5% annualised.
Defence Bank, established in 1975 as the Defence Force Credit Union Limited, announced it would be changing its name to Australian Military Bank on 1 December 2015. The new bank said by becoming a bank, it would be able to access wholesale funding at a lower cost and thus allow it to provide more competitive products over time to its members. The change would also present a clearer idea of the service it offers.
Defence Bank is the latest in a string of name changes from former building societies. Bank Mecu became Bank Australia in August and Wide Bay Building Society become Auswide Bank in April.
Strong demand for Macquarie Group’s new Capital Notes II in the institutional book-build process has seen the offer closed early and the issue upsized from an indicated $400 million to at least $500 million, which is the amount allocated to brokers and institutional investors. The general offer has also been closed but the security holder offer remains open until the 15 December.
The margin has been fixed at 5.15%, which is at the lower end of the initially indicated 5.15% to 5.35% range. This margin is fixed for the life of the notes and is on top of the 180 day BBSW reference rate which is reset every six months. In a slightly unusual move, the reference rate will be equal to 90 day BBSW for the first distribution period which ends in March 2106. At the current BBSW rate, the total return for the first year would be around 7.40% including a franked component equal to 40% of the distribution.
The $500 million is the amount allocated to brokers and institutional investors with the final issue size determined by the securityholder allocation. Click here for the product disclosure statement (prospectus).