News

ABS data released indicates the number of buildings approved for the month of June fell by 8.2% on a seasonally adjusted basis. A Bloomberg survey of analysts had predicted a 1% decline but the figures are notoriously volatile. On an annual basis, total approvals rose by 8.6% seasonally adjusted and, as with the monthly figure, the result was down on the 19.5% expected.

Total private sector credit rose 0.4% for the month of June and 5.9% for the year. The monthly figure is down on the 0.5% expected and is a drop from the 0.5% recorded for May. However, the annual figure is higher than the 12 month figure to June 2014 , only slightly lower than the 6% expected and is the strongest monthly result since the GFC.

Contrary to initial expectations, it would seem that the ASX’s mFund platform is seeing more activity from advisers rather than self managed superannuation funds directly. Ian Irvine, head of customer and business development at the ASX, told the AFR in an interview that “around 60% of the uptake is adviser-led and on behalf of SMSF clients. We think that’s due to the larger transactions sizes and the desire for diversification”. mFund allows investors to apply for and redeem units in managed funds via the ASX and in the past 12 months the average transaction size has been around $50,000.

Last week Bill Gross, the former chief of PIMCO and now lead portfolio manager at Janus Capital, said the Unconstrained Bond Fund he runs had profited from staying away from high-yield bonds and in some cases shorting the High Yield CDX, which is an index of 100 liquid North American entities with high yield credit ratings traded in the credit default swap market. He said a falling Chinese stock market would create volatility in other markets in which investors could take advantage. “It’s not necessary to short the Chinese stock market, [as a] matter of fact it’s very dangerous, what you do is you look outside the Chinese economy.”

The Federal Reserve’s Federal Open Market Committee finished its two day July meeting last week and, as expected, left the federal funds target rate unchanged at a range of 0% to 0.25%.

The committee’s view of US growth and general economic conditions is slightly more optimistic than in June and a rate rise appears to be not far away. Before the FOMC raise the rate it said it needs to see “some further improvement in the [labour] market” and be reasonably confident of inflation moving back “to its 2% objective”. Unemployment at 5.3% is now below its 65 year average and 0.2% lower than the June rate of 5.5%.

Westpac said the tone of statement sounded more upbeat and pointed to the part of FOMC statement which referred to a range of labour market indicators suggesting labour utilisation to be higher. They still think a September rate rise is likely. The Commonwealth Bank said the FOMC had left the “door open for a rate hike” in September and the two conditions required for an increase were “on track”.

Late last week Federal Reserve officials confirmed the release of internal staff interest rate projections for the rest of 2015. Normally these projections are not released for five years but they were available on a public website at the end of June. The projections indicate a 0.35% federal funds rate in the December quarter although official June forecasts from the US central bank imply two rate increases for the rest of the year. The disclosure had limited impact on the market with shorter term treasury yields falling on the day, but among broader market reductions in bond yields rates generally.

The latest survey indicated US consumers’ confidence levels dropped away in July, with The Conference Board’s index dropping to 90.9 from its previous recording of 99.8 in June. Lynn Franco, Director of Economic Indicators with the Board said “Consumers continue to assess current conditions favourably” but a less optimistic labour market outlook and uncertainty and volatility in financial markets appears to have shaken consumers’ confidence. However, in spite of the negatives “the Index remains at levels associated with an expanding economy and a relatively confident consumer.”

Last week Fitch Ratings upgraded three of QBE’s subordinated debt issues from BBB- to BBB and revised its outlook to stable from negative. According to Fitch, its reasons for the changes were the strengthening of QBE’s capital and financial leverage ratios and the expectation of a further improvement in the ratios through 2015.

UK second quarter GDP figures were released last week, rising 0.7% for the quarter and 2.6% for the year. The corresponding first quarter figures were 0.4% and 2.9% year on year. Domestic factors were mostly behind the increase with the recent strength in the pound making conditions for exporters more difficult. The UK currency rose nearly US1c on the news as the likelihood of a rate rise later this year increased.

National Australia Bank, J.P. Morgan and Westpac Institutional Bank will be hosting a series of investor meetings which will provide an update on Resimac’s Premier RMBS programme. An Australian transaction “may follow subject to market conditions”.