News

The latest FOMC minutes suggest that the reserve thinks that the Q1 slowing of the economy was temporary, relating to ports and weather but there are still strong headwinds to face in the form of Greece, China and the appreciation of the US$. The minutes did not reveal much that was new but a June hike looks unlikely with many members doubting that the data was robust enough to risk a rate rise. “Many participants, however, thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising had been satisfied.” the minutes said. The minutes also repeated worries about bond market volatility and the possibility of long-term rates going into spasm when the Fed does lift rates, echoing concerns that Janet Yellen had already made.

The minutes from the May RBA board reintroduced the explicit easing bias that was missing from the post-meeting statement. The minutes restated comments about “recent encouraging trends in household demand” and went on to note “further depreciation of the exchange rate seemed to be both likely and necessary, particularly given the significant declines in key commodity prices”. The minutes indicate that the board debated leaving the rate cut until June, but decided to go ahead given new forecasts for persistently soft growth. The minutes also said that board members agreed not to give any clear guidance on future policy direction, following its widely expected quarter point cut in the cash rate to a record low 2.0%: “Members agreed that, as at the time of the reduction in the cash rate in February, the statement communicating the decision would not contain any guidance on the future path of monetary policy. Members did not see this as limiting the board’s scope for any action that might be appropriate at future meetings.” The discussion on the economy was in line with the Statement on Monetary Policy and covered areas such as non-mining investment failing to pick up as much as the RBA would like. “Members noted that if households respond to very low interest rates and higher asset prices to a similar degree as they had in the period prior to the global financial crisis, expected outcomes would include a lower saving ratio and higher consumption growth than embodied in the forecasts. Alternatively, if households were less inclined to bring forward their consumption than had been factored into the forecasts, perhaps to limit the increase in their leverage, consumption growth would be likely to be weaker and the saving ratio higher than forecast,” the minutes said.

CPI rose 0.2% in the March quarter 2015 to an annual 1.3%, following a rise of 0.2% in the December quarter 2014, in line with expectations. The trend data, at an annual rate 2.35%, was much stronger than expected and clouded the outlook for a May rate cut. Despite the CPI strength, most analysts still expect the RBA to cut rates at the next meeting. NAB is the one bank to have changed its mind with them now saying rates will stay on hold.

The Fed is concerned about weakness in the US labour market and economy, putting a dampener on its plans to lift rates this year. The reserve’s latest policy statement hints that it will adopt a meeting-by-meeting approach in deciding when to lift rates for the first time since June 2006. “The committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labour market and is reasonably confident that inflation will move back to its 2% objective over the medium term,” the Fed said, mirroring guidance it gave last month but did not completely rule out lifting rates at its next meeting.

The latest RBA minutes reiterated that a lower dollar was in prospect in the light of further falls in commodity prices and that inflation is no barrier to a further rate cut. “Members saw advantages in receiving more data, including on inflation” to allow “more time for the economy to respond to the reduction in the cash rate earlier in the year,” according to the minutes.

ANZ suspended “seven staff involved in markets trading pending completion of the investigation into practices to 2013” and said it was “continuing to cooperate with an investigation by ASIC into historic trading practices in the Australian interbank market known as the Bank Bill Swap Rate market.” According to the bank, ASIC has been investigating the 14 BBSW panel bank members since mid-2012 over their past involvement in the BBSW submission process.

Stockland is issuing Australia’s first corporate green bond. Proceeds will fund the development of green-star rated real estate projects. The bond will be listed on the Singapore Stock Exchange. The 7 year bond will be priced at a euro fixed-rate coupon of 1.50%, marketed to investors at Swap + 85bps and tightened to 82bps.

Glencore Australia Holdings announced a debut AUD bond for $500m. Initial pricing guidance is 140bps over the 5y Swap, or about 4.85 per cent. The notes are expected to be rated Baa2 by Moody’s and BBB by S&P. Lead managers are ANZ, NAB, and UBS Investment Bank Switzerland. Glencore has also launched a 7y €600m bond in Europe.

Royal Bank of Scotland has discovered that its traders tried to massage its Australian BBSW submissions and has given ASIC an undertaking that it will ensure its contributions to interest rate benchmark settings are in accordance with its obligations. The interference may have benefited the bank’s derivative positions. Since September 2013, BBSW has been calculated electronically with no input from the panel of banks that used to make submissions. In addition to the enforceable undertakings by RBS, the bank will make a voluntary contribution of $1.6m to fund financial literacy projects.

Suncorp Bank has announced an offer to purchase all of the Unsecured Perpetual Floating Rate Subordinated Notes through an off-market buyback.  Suncorp Bank is offering a fixed price of $80 per Note which it says “represents a 10 per cent premium to the SBKHB trading price on Friday 2 May 2014 and a 10 per cent premium to the one month Volume Weighted Average Price”. The notes were issued at $100.

Suncorp group chairman, Ziggy Switkowski, said the buyback formed part of Suncorp’s ongoing capital management programme. “These Notes were issued at $100 in 1998 in a different financial and regulatory environment and with a margin that reflected the financial markets at that time,” he said. “Since the issue of the Notes, there have been significant changes in economic conditions which have resulted in the value of the Notes, along with other similar instruments, being depressed for some time.”

Suncorp is potraying the buyback as an opportunity for Eligible Noteholders to sell their Notes at a premium to recent trading prices. Participation in the Buy-back Offer is voluntary. Notes that are not bought back through the buyback will remain on issue on their current terms and listed on the ASX.