News

Following the release of the SA budget, SAFA said via its monthly communique it has no intention to access term markets in July. SAFA’s funding requirement for the 2015 / 16 year is estimated to be $4.2bn. It plans to issue existing 2023 and 2025 lines and possibly new 2022 and 2024 lines if there is investor demand. It confirmed the existing caps of $2.5bn.

Retail sales rose by 0.3% in May, an improvement on the April decline of 0.1% but below the expectation of 0.5%. On a year on year basis, sales were up by 4.7% again an improvement on the April figure of 4.1%. AMP’s chief economist Shane Oliver said the result was consistent with the RBA retaining an easing bias.

Auckland Council will embark on a roadshow through Australia and Asia in the middle of July. The council last raised funds in Australia in 2012.

In a move not anticipated by markets, Sweden’s central bank took its official rate further into negative territory as well as announcing the expansion of its asset purchasing program. The new rate was set at -0.35% and an additional $US5.25bn worth securities will be bought in what is thought to be an attempt to limit the strength in the krona.

Commonwealth  Bank’s fixed interest team believe there will be two cash rate cuts in Australia; one this year and one in 2016 while expecting the US Fed to increase rates: “markets should price more chance of easing in Australia in 2015 and more chance of tightening in the US” .

Woolworths’ CDS are now about 25bps higher than one month ago. A CDS is the price for insuring a company’s bonds against default. Even if the chance may still be relatively slim, a higher price is an indication the market thinks the likelihood of the
company defaulting has increased.

A senior dealer at an Australian investment bank says he was surprised how stable hybrid securities’ prices were amid the gyrations of most other stocks. The unnamed dealer said, “you would have thought they may have been weak again…they have held up well this week”.

The NSW government budget was delivered last week and it announced a headline surplus of $2.1bn (vs $0.3bn previously). The 2015/16 borrowing requirement would be $7.3bn and this compares to the $4.3bn NSWTC requirement in 2014/15.

NSW is rated AAA/Aaa by S&P and Moody’s and after the budget was tabled, both Moody’s and S&P immediately stated NSW’s rating would not be affected.

The budget showed surging revenues from property stamp duties with nearly $2.0bn more than previously forecast and reinforcing the market’s view of NSW’s and Victoria’s superior fiscal positions to other states.

NSW faces an ongoing large capital spending outlook, which is a key source of fiscal risk for the state. Net debt is forecast to grow from $9.9b in 2015/2016 to $15.8b in 2018/2019 but essentially the NSW government has an operating surplus. The government is undertaking a 99y lease of 49% of its electricity transmission and distribution business although the proceeds are not included in the Budget until realised. The budget forecasts $30b in sales proceeds but $20b is earmarked for the “Rebuilding NSW” program leaving a forecast net $10bn for debt reduction.

Tasmania’s parliament has passed the Liberal government’s 2015/16 budget. The $5.4 billion budget outlines a plan to see the state back in surplus by 2016/17.

The US economy contracted in the first quarter but less than originally data suggested. Bad weather, an improving dollar, spending cuts in the oil & gas sector and disruptions at West Coast ports were seen as the drivers for the result.