News

Fitch also upgraded Suncorp Group Ltd’s long term debt to A+ from A and kept the group’s outlook as “stable”. The upgrade recognises the strength of the group’s non-life insurance franchise within Australia and New Zealand and a robust financial profile. The rating and outlook of the banking subsidiary, Suncorp- Metway, remained unaffected at A+/stable.

Customer-owned bank bankmecu, formerly the Members and Education Credit Union, announced it would be changing its name to Bank Australia on 17 August. The bank said its soon-to-be former name was not memorable, was often confused with another bank and was difficult to pronounce. The bank will remain customer-owned.

In ratings news, Ratings Agency Moody’s has downgraded mining services company Emeco to Caa1 from the previous rating of B3. Continued commodity weakness and its effect on the demand for services provided by companies such as Emeco is seen as the reason. Meanwhile, Moody’s has also flagged Leasepan Australia to be reviewed for a likely downgrade.

Prior to the release of the June quarter CPI, economists were expecting a 0.8% rise for the quarter and a 1.7% rise year on year. The underlying inflation figure, which strips out the more variable component of the measure, was expected to come in at 0.6% for the quarter and 2.2% for the year. The actual results were as follows:

June Qtr CPI: 0.7% (+0.2%)
Mar Qtr CPI revised up 0.1% to 0.7%
CPI to June year end: 1.5%
June Qtr u/lying CPI: +0.5% (Mar Qtr 0.7%)
U/lying CPI year to end of Jun: 2.3% (yr to end of Mar 2.4%)

Stephen Koukoulas said there is “nothing in the CPI to sway [the] RBA…it “reflects sub-trend growth and weak labour markets.”
Westpac said the headline rate was less than expected due to unexpected food price effects but the core inflation rate was expected. NAB’s David De Garis said, “Moderate inflation…would buy the RBA more time to leave…policy unchanged”. He expects rates to remain unchanged this year before rising next year.
ANZ said there was nothing to stop the RBA from cutting rates. “With sub-trend growth, low wages….low inflation and strong competitive pressure, the inflation outlook is not a constraint.
Shane Oliver: inflation is “benign” and not low enough to bring RBA cut. He still thinks rate cut odds are 50 /50.

The Anika Foundation speech given by the RBA governor typically focuses on longer term issues but is capable of addressing the issues which may have current relevance. This year’s speech touched on what is considered to be trend growth and the question he, and presumably the RBA as a whole, are asking is whether current trend growth is less than the consensus estimate of 3% to 3.25%. Perhaps “trend output growth is lower than the 3% or 3.25% we have assumed for many years”…and if so…. “our assumptions about trend growth may need to be revisited.”

The Customer Owned Banking Association, which represents smaller banks, credit unions and friendly societies welcomed APRA announcement of stricter capital requirements for mortgages. The CEO of COBA said the decision “brings us closer to a level playing field”. Under the current regime, major banks could allocate a lower amount of capital than other mortgage lenders. This gave the majors a funding cost advantage and was “distorting the market”. Suncorp Bank, Bendigo and Adelaide Bank, Bank of Queensland and ME released a statement which said, “Standardised banks are already required to hold more capital …on their residential mortgage exposures. This remains unchanged.”

ME Bank priced a large new residential mortgage-backed securities issue last week. The transaction, SMHL Series Securitisation Fund 2015-1, was made up of six tranches for a total of $1.5b.

For all the turmoil going on in China’s stock markets, Aberdeen Asset Management’s Nick Bishop thinks China’s effect on the global asset prices is still yet to be properly felt. Even if Chinese government agencies carry huge debts, household savings are substantial and if the restrictions on capital movements to the rest of the world were eased or lifted Chinese capital flows would “boost real assets around the globe even if its economy is slowing”.

According to Westpac’s recent July research paper on the US economy, managed funds, which are referred to as “mutual” funds in the US, are predominantly investing in debt securities. While the study does not give a split between US treasurys, investment-grade debt and high-yield debt the diagram produced in the report shows a clear preference by institutional investors for the debt markets over equities in the last two quarters. This is somewhat at odds with anecdotal evidence fund managers are preparing for a rise in US interest rates.

Last week the Reserve Bank of New Zealand cut its cash rate target by 25bps to 3.0%. The Bank said New Zealand’s growth outlook was soft, inflation was below its 1% to 3% target and dairy prices had “fallen sharply”. New Zealand was one of the few countries to put rates up in recent times and this move is a partial retraction of the increases in 2014.