Last week, president-elect Donald Trump gave his first press conference since the election with markets anticipating insight into potential polices and reforms. Transparency was not forthcoming and as a result, equity markets were softer but finished the week broadly unchanged. Bond markets followed this disconcerted tone with the US 10-Year Treasury yield moving just -0.02 to 2.396%. Australian markets continue to follow offshore leads with banks being the biggest driver. The week ended with a number of US banks kicking off US reporting season (Q4). JP Morgan, Bank of America and Wells Fargo all posted positive results. The US Bank Index is trading at a price / earnings ratio of over 21x, its highest level since late 2009 and well above the 17.1x average. Domestically, major bank equity prices are at their highest level in a year, relative to the ASX200 Index. This is arguably the market getting a little ahead of itself in regards to the outlook for banks but we will monitor the regulatory/legislative situation closely. In company news, ANZ announced an agreement to sell UDC Finance, the asset finance business of its wholly owned subsidiary ABZ Bank New Zealand, to HNA Group. This follows ANZ’s decision earlier this month to sell its 20% stake in Shanghai Rural Commercial Bank. Together the transactions are expected to add ~0.50% to the bank’s APRA Common Equity Tier 1 (CET1) capital ratio. Given the NZ asset finance business resides outside the bank’s Asian operations, the divestment was slightly unexpected. Nonetheless, the move fits within management’s strategy of transitioning to a simpler banking model. In other company news Crown Resorts continues to keep the market guessing with John Alexander replacing Robert Rankin as Chairman and James Packer returning to the board. Overall these changes have no effect from a credit perspective but having Packer involved again will give confidence to the longevity of the public business. This morning the infrastructure battle heated up with DUET’s board approving the scheme implementation agreement as proposed by a consortium led by Cheung Kong Infrastructure. While this is not an issuer we cover it is an example of corporate activity to come and will test change of control clauses for issuing subsidiaries depending upon the terms of the each security.

Chart 1: Bloomberg AUSBond Composite Index (Monthly) Chart 2: Bonds vs Equities 2015/2016 (Monthly) Chart 3: Term Deposit Review – December