Credit markets were partially open last week but not particularly active and investor confidence was low due to continuing stock market volatility. It is difficult to gauge investor confidence at present, but press reports over the weekend that BHP Billiton was postponing their hybrid capital raising to global investors as a result of weak credit markets suggests institutional confidence in the credit markets is low. It is our understanding that no decision has been formally made and the group will assess the market’s appetite over the coming week.
In other news this week the Bank of Queensland Limited reported strong headline results well above expectations (albeit Shine Lawyers is preparing a class action against the Bank on behalf of customers who held Bank of Queensland Money Market Deposit Accounts) and Macquarie Group entered a trading halt to raise $400 million in a share placement to institutional investors and a share purchase plan to help fund the acquisition of Esanda Deal Finance Unit from ANZ. The portfolio includes net lending assets of $7.8 billion comprising retail point-of-sale auto finance of $6.2 billion, and wholesale bailment facilities and other Esanda branded finance offered to motor vehicle dealers of $1.6 billion. The total purchase price for the portfolio is $8.23 billion and is expected to increase the common equity Tier 1 ratio is ANZ by 0.20%.
On Friday the US payroll numbers were disappointing with employers adding just 142,000 new jobs in September (market expectations for ~200,000). This doesn’t help the outlook for the global economy and effectively rules out any rate cut in 2015. In Australia, the RBA board meeting is on Tuesday and though Glenn Stevens said last month he was “pretty content” with the benchmark rate, interest rate markets are suggesting it is only a matter of time before they announce further cuts. In February the 10-year bond yields hit an all time low of 2.27%, before lifting to highs near 3.15% on June 11 and are now back down around 2.55%. 3-year bonds are bouncing between the 1.80 – 2.0% range (1.77% at the time of writing). We may see some support this week depending on the outcome/minutes of the RBA meeting (note that TD securities inflation expectation was higher than expected at 0.3% month on month / 1.9% year on year) but inflation (or lack of) is their key concern. As at 7 October 2015, the ASX 30 Day Interbank Cash Rate Futures October 2015 contract was trading at 98.055, indicating a 24% expectation of an interest rate decrease to 1.75% at the next RBA Board meeting (this has increased from ~7% post the Tuesday RBA board meeting).