Last week, reporting season (Q3) in the US kicked off with the S&P500 closing 1.3% lower. Alcoa missed profit guidance on Tuesday and there were better than expected results from a number of US banks on Friday (JP Morgan, Citigroup and Wells Fargo). While only 7% of S&P500 companies have reported thus far, overall sales have beaten estimates and it will be interesting to see if this trend can be sustained. As the US comprises approximately 20% of global output, there may be a flow on effect to Australian companies over the medium term.
Domestic indices performed slightly better than offshore with the ASX200 and Ausbond Composite Index shedding 0.6% and 0.4% respectively with the latter impacted by the 10-Year Australian Government Bond Yield rising 0.09% over the week.
On Friday, The Reserve Bank of Australia (RBA) released its semi-annual Financial Stability Review highlighting Australian banks’ exposure to property development (particularly high-rise apartments) as a key risk to economic stability. We expect more information will come to light when 3 out of 4 major banks report over the next few weeks.
APT Pipelines (APA Group), Bank of Queensland and Colonial priced new wholesale senior debt issues at margins of 1.80% p.a. (180-day BBSW), 1.20% p.a. (90-Day BBSW) and 1.17% p.a. (90-Day BBSW) respectively. While wholesale primary markets remain strong, the percentage of companies currently engaged with the domestic market has fallen to 61% from 75% in 2015 according to a survey conducted by Moody’s and Kanganews. The survey also revealed that a number of issuers nominated US Private Placements (USPP) as the best option for wholesale debt funding.
Finally, Crown Resorts (ASX: CWN) announced this morning that 18 employees were detained by Chinese Authorities. The company noted that it is yet to be provided on reasons why but the arrests follow a long series of investigations by the Chinese government into corruption regarding the Chinese gaming industry.
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