Australia In Focus : Yawn And Watch Cricket

AUD UPDATE

Australian bonds led by the Fed’s noose as the RBA Governor Stevens sees a period of sub-average growth as it undergoes a “major transition”, moving away from its pillar of growth in mining. http://www.bloomberg.com/news/articles/2015-03-20/rba-s-stevens-sees-australia-having-period-of-sub-average-growth

With iron ore prices down 23% for 2015, sinking to their lowest since weekly record keeping started in 2008, we cannot find a bright spark for Australia except for tourism, education and the real estate market which is holding up and showing no signs of backing down as foreign interest continues. The latest being Singapore’s Sim Lian buying an office block in Perth.

Regulators continue to harp on the housing market risk but there is little they can do as interest rates hover at their historic lows and the latest government bond auction drew a record low in yield, a 3 1/2 year paper paying 1.8195%. We shall have the results of the APRA, Australian Prudential Regulation Authority, risk assessment next month.

Not all is well for the rest of the bond market as mining giant Fortescue Metals (Ba2/BB/BB+) was forced to call off a US$2.5 bio planned issue on poor investor demand at the yield level (8-8.25% 7Y NC3) they were comfortable with. http://www.wsj.com/articles/fortescue-faces-iron-clad-commitments-heard-on-the-street-1426681408

This comes after FMG called off a loan deal.

BHP Billiton (A1/A+/A+), on the other hand, managed to pull of a A$ 1 bio of 5 year notes at a 3% coupon.

This suggests that the markets are sticking to the big names and whilst we may see a wave of bankruptcies in the smaller operators, systemic risk remains low.

And we continue to see economic change as the economy moves into construction and services and tourism in employment statistics.

australia employment

Australia February employment by industry

 

I think we have hit the lows for the AUD as we head into the quarter end. According to the BIS, AUD’s REER (Real Effective Exchange Rate) is at its lowest since Aug 2009, a 5 year low.

While I would not put it past the AUDUSD to rally back past 78 cts next week (which is did on Friday before closing at 0.7775), I would not be putting too many bets there as Australia decides on Monday if they will be joining China’s Asian Infrastructure Investment Bank (AIIB) on Monday much to the ire of America.  http://www.reuters.com/article/2015/03/20/us-asia-aiib-idUSKBN0MG0CB20150320

A Moody’s poll suggests that market concerns in Australia lies mainly in China and their growth outlook.

Bonds should remain safe with most AUD corporate bonds giving better value than Singapore’s corporates as opposed to government bonds where SGS looks like a better bet for now. http://www.bloomberg.com/news/articles/2015-03-16/singapore-bonds-become-highest-yielding-aaa-debt-over-australia

Yawn. The only highlight next week would be the Cricket World Cup semi finals where Australia will play India in a one day match on 26 March. The winner will be tipped to win the cup given the other semis is NZ vs South Africa (24 Mar). And oh yes, we have the RBA Financial Stability Review on the 25th.

Leaving with the indicative bond prices.

aud bonds