Notice the large pop in Chinese FAI (fixed asset investment) +ve is all government and private FAI all -ve. This divergence is the opposite to the post GFC stimulus round. 

US Housing – turned the corner?

US housing had to work through the legacy of overbuild when the GFC burst the property bubble. Its probably the most interesting data point in the US, outside the FED rate game. April was a huge month – sales soared 16.6% or 619,000 homes vs estimates of 525,000, the fastest pace in 24 years. 

Why is it so important – The big increase in sales took supply sharply lower. At the current pace, it would take 4.7 months to exhaust all inventory. Beware though, this data often gets revised by large margins. 

These strong numbers are turning up in stocks like James Hardie JHX.ASX (below), and the recently listed Reliance Worldwide Corporation (RWC.ASX +24% in a month)

The US consumer has waited for record home prices to buy new homes!

James Hardie (JHX.ASX) – 12m

Oil Trade

So far we have some good success calling the oil trades. We have only been able to enjoy the long leg via ETF's. I think the price is over-cooked up here though.

Oil traders are borrowing from banks to store crude at a loss (why? can only be a bet on further price rises, which might turn sour if they need to clear into softer demand). Storage rising at sea, generally means easy onshore storage, is generally full. 

There have been a number of one offs helping the oil price, along with the general optimism.

From MS –
 

Floating storage continues to grow despite outages and poor economics. According to Reuters reports, at least 40 supertankers laden with crude are anchored offshore Singapore as floating storage. In fact, according to Reuters, the volume stored offshore Singapore is up 10% WoW despite outages, to 47.7 mmb. The increase in floating oil comes despite disruptions in the Atlantic Basin and an out-of-the-money floating storage arb, suggesting markets are not as healthy as sentiment suggests. It also highlights the speculative nature of much of the oil bounce this year (recent disruptions aside)

Zerohedge: "9% of the global supertanker fleet is currently on storage duty: this is an increase of 40% since December"

Bloomberg: Oil Traders are borrowing from banks to store crude at a loss

Australia's AAA credit rating – what a downgrade might mean. 
Bondadvisor.com published a short review on the implications of a credit downgrade, for Govt Bonds and the Banks. It's well worth a read (link HERE). Of particular relevance for the banks:-

"​​​If Australia were to lose the ‘AAA’ credit rating not only could the Australian federal and State governments expect to see an increase in funding costs, so too could the Australian banking system. The State governments and the four major Australian banks have a degree of inter-dependency on the Australian sovereign credit rating."

As they rightly point out, all sides of politics are to blame, as is the electorate for encouraging short term economic policies. 

Hybrid issues going offshore

ANZ is planning to launch a US$ hybrid. Starting with a $US750 million issue. 

Why – the ATO has made a private ruling, that will allow the banks to issue hybrids without having to attach franking credits to the interest payments. This may open the door for the domestic banks to raise billions from the yield starved international market. 

The general implications for hybrids, is that it should be supportive for prices domestically, by reducing supply. 

AFR article HERE. 

Note, the Westpac closed out its recent tier one issue, doubling the allocation and still well over-subscribed.

(Westpac Capital Notes 4 (WBCPG) at a margin of 4.90% p.a. above the 90-Day BBSW. The deal was closed at an offer size of $1.45 billion, up from the initial target of $750 million.)

NAB Capital Notes 2 

On the subject of Hybrids, NAB have just launched their next issue (Notes 2). This is a tier 1 issue, and noting the Westpac hybrid mentioned above, was priced at 4.90% above BBSW, the range for this issue is 4.95-5.10%. 

We can access the issue on behalf of clients, and an independent report on the issue can be viewed HERE.

All the best,
Tom