News

Moody’s says that Australian banks’ domestic funding gap, the proportion of loans at their domestic operations not funded by customer deposits, continues to narrow. This is credit positive for Australian banks, as a key credit weakness is their structural reliance on wholesale funding, in particular from abroad, to fill the funding gap. Moody’s analysis is contained in its report “Australian Bank Funding and Liquidity: Domestic Funding Gap Continues to Narrow.”

Morningstar’s Global Fund Investor Experience report says that Australia scored badly in terms of regulation and taxation. The report covers the experiences of managed fund investors in 25 countries across North America, Europe, Asia and Africa and grades countries across four key areas, including: fees and expenses; sales and media; disclosure and regulation; and taxation. “Morningstar researchers generally favour: active fund regulation; a low investor tax burden; more disclosure; lower fund fees; a varied fund distribution system; and local news media that helps to educate investors about their choices,” Morningstar says. Australia’s overall grade was B- (up from C+ in 2013) but scored a D in the area of tax and regulation. This was lower than the C- score in the last report. “Australians continue to pay some of the highest fund taxes of any country in the report, including a consumption tax for the investment management service,” says Morningstar.

The latest research from Plan For Life indicates that managed funds grew by $115.2bn in the 12 months to end of March 2015 with retail funds up $45.3bn and wholesale funds up $69.9bn. The businesses of Macquarie, BT, AMP and Commonwealth/Colonial all saw double digit growth.

Pimco thinks the Fed will start to lift in September, kick starting a multiyear normalisation process, Scott Mather, one of three co-managers of the Pimco Total Return Fund, said in a report.

The RBNZ cut the official cash rate by 25bps to 3.25% on 11 June, its first cut since March 2011.

In its Global Economic Prospects report, the World Bank downgraded the outlook for global economic growth and now expects the world economy to grow by 2.8%, 0.2 percentage points slower than its January forecast. The bank says global growth in 2016 will reach 3.3%, presuming that recoveries in the euro zone and Japan take hold. “We at the World Bank have just switched on the seat belt sign,” Kaushik Basu, the World Bank chief economist said in a press conference in Washington. “If I were advising the US Fed, I would recommend that (higher rates) happen next year instead of late this year,” he said. “My own concern is that a relatively early move (in rates) could cause an exchange rate movement, strengthening of the dollar, which will not be good for the U.S. economy and have negative repercussions for other countries,” he said.

The AOFM bought large chunks of RMBS after the GFC, in effect to support the banking system when banks needed capital and the market for RMBS was shaky. The market for RMBS has been stable for some time but the AOFM auction will test that support as it plans to auction each month a volume of between $300m and $500m of RMBS until it has sold its entire inventory. The AOFM intends to provide notice of its specific divestment intentions for between five and eight weeks in advance, at the time that notice is provided.

Fitch downgraded the credit rating outlook for BHP Billiton and Rio Tinto in the light of falling iron ore prices, reaffirmed their ratings at A+ and A- respectively and placed both on negative watch.

Glenn Stevens spoke at an Economic Society of Australia event last week and indicated that the RBA was open to more easing this year. “We remain open to the possibility of further policy easing, if that is, on balance, beneficial for sustainable growth,” he said. “A further fall in the exchange rate, which is not assumed in the forecasts, would add both to growth and prices … If one thinks that such a decline at some point is likely, that constitutes an upside risk. Of course, the list of countries that would prefer a lower exchange rate is a long one and we can’t all have it,” he said.

German bunds sold off sharply last week in the face of new supply and a rosier economic picture. German 10y yields rose 3bps to 0.984%. Twice in the last week yields have approached 1%. ECB officials have so far mentioned that the rise in yields is to be expected, given the rebound in the euro area economic data. The sell-off pushed longer-dated US Treasury yields to their highest since September. The yield on 10y Treasurys hit 2.495%.