News

The QIC Shopping Centre Fund team will be holding investor meetings in Australia and Asia during the last week of July. The Fund last went to the market in Australia in November 2013 when it issued six year FRNs.

WA has avoided a downgrade from S&P, keeping its AA+ rating but at the cost of acquiring a negative outlook. S&P said it expected WA’s revenues to improve over coming years but at the same it noted the government would need to keep a tight rein on spending if it means to avoid a downgrade.

U.S. retail sales figures for June were released with the figures being less than expected. Sales slowed by 0.3% last month while May’s figures were revised down to a 1% increase. Core sales, which strip out the more volatile elements of the survey, dipped 0.1% in June after rising 0.7% in May. U.S. bond rates fell in response as markets factored in a lower probability of the Federal Reserve raising rates later this year or at least deferring the generally-expected rate rises.

The Westpac-Melbourne Institute index of consumer sentiment was released last week and it showed a drop to 92.2 from the 95.3 recorded in June. It was the lowest result since December and another one of a string of negative results in the last year and a half. Westpac saw Greece’s debt crisis and China’s share market volatility as the probable causes of households’ pessimism but, as happened in 2011 with a bout of European banking instability, the bank expects these influences to be temporary and for the index to bounce back. However, Bill Evans, Westpac’s chief economist said such volatility did “not disguise the fact that underlying consumer confidence in Australia remains consistently low.”

The results have not changed his view of RBA rates either and he says the RBA “unlikely to cut rates in August”. Any change in the RBA’s view would be predicated on “a substantial downward revision to its growth forecast for 2016 to below-trend territory”. Finally, he commented on current market expectations of a move in November. Markets were pricing in a 64% chance of a rate cut in that month but Westpac retained its “view that rates will remain on hold for the remainder of this year and throughout 2016.”

NAB released its monthly business confidence and business conditions surveys and both showed a big increase. Conditions increased 5pts to 11pts and confidence increased 2pts to 11pts. Lower interest rates, a lower dollar and a good reaction to the Federal budget all contributed to more positive survey results. NAB said “Improvements in both confidence and conditions over recent months are starting to suggest a more convincing turnaround in the non-mining sectors is underway.” However, the bank’s chief economist, Allan Oster said there was a “disconnect” between the survey results and what businesses actually planned. Consumers were still cautious and businesses reluctant to hire and the effects of international events in China and Greece were yet to show up in the surveys. The confidence survey leads official employment figures by about six months and it suggests just enough job creation to keep unemployment figures in the 6% to 6.25% range.

Chinese second quarter GDP figures were released last week and the numbers showed a 7% growth rate which 0.2% higher than expected. Some concerns were expressed regarding the statistical veracity of the numbers, especially in regards to the large change of the price deflator component.

Janet Yellen gave her semi-annual report to members of Congress last week and repeated her view of likely future interest rate increases. Mirroring speeches she has given over the last month, the federal reserve chief again stated the process of normalising interest rates would begin later in the year assuming the economy grew as expected.

In a speech delivered in Cleveland last week Janet Yellen reiterated her view that an interest rate increase was due later this year in light of an improving US economy. While she noted the uncertainties facing the US, as a result of domestic and international issues, she added new developments would only “delay or accelerate this first step”.

The long-awaited report into the cause of the October 2014 ‘flash crash’ in the US Treasury bond market has been released. The US bond market is one of the most liquid in the world and it shocked markets when 10y bonds plunged from around 2.20% to 1.86% in a matter of minutes. Within 15 minutes of this the market was trading back above 2.00% and by the end of the day the market had closed at 2.12%. The event became infamously known as the ‘flash crash’.

The report, composed by the New York Fed, the SEC, the Commodity Futures Trading Commission and the U.S. Treasury Department stated that the almost unprecedented market movements could not be attributed to a single or specific cause, but rather to a number of contributing factors. Among these was the unprecedented number of short positions being unwound (many, if not most, market participants were expecting the Fed to raise rates), the decline in order book depth, and changes in order flow and liquidity provision. There was also a high level of self-trading where sell orders were purchased by the same party and vice versa. “For such significant price movements to rapidly occur without a clear catalyst in one of the world’s most liquid markets in such a short period of time is highly unusual” the report said.

It went on to say that “the abrupt occurrence of such significant and unexplained volatility…calls for a deeper analysis of the conditions that contributed to the events of October 15 and the structure of this important market” and that officials will “further study of the evolution of the U.S. Treasury market and its implications for market structure and liquidity”.

Fresh from winning a $100m mandate from the Tasmanian Retirement Benefits Fund, Zurich-based GAM has produced a solid June performance and a 2.41% return for the quarter on its Absolute Return Bond Defensive Fund.  These figures compare rather well to the average return across the Yield Report “universe” of global bond funds where returns for the month and the quarter were -1.03% and -1.22 respectively.

GAM uses a fundamental, top down approach to actively manage a global portfolio of bonds, notes and derivatives. It produced a positive return for the month and the quarter whereas many other global and domestic bond funds produced returns of between -1.00% and -3.00%.