Last week we entered the core of reporting season with a number of major financial and corporate issuers providing varied results. While the results have been broadly credit neutral against the backdrop of benign fundamentals, the equity market punished companies who failed to meet guidance which highlights the inherent leverage in current earnings multiples. In line expectations, the rebound in commodity prices supported the bottom line of mining service providers (Aurizon), AREITs continue to benefit from strong commercial real estate valuations (GPT, Mirvac, Goodman) and supermarket margins are being squeezed (Wesfarmers). Telstra was the major negative for the week with its operating profile showing further signs of stress from structural changes in the Telecommunications sector. In the banking world, Net Interest Margins (NIM) continue to remain under pressure driven by uncertainty around regulatory changes and volatility in the housing market. While the impact on the Commonwealth Bank of Australia was limited, Bendigo Bank reported a soft earnings performance. On the other hand, insurers like Challenger benefited from regulatory changes which filtered through to earnings growth. However, this was accompanied by an increase in risk appetite and hence, we remain cautious of the group’s overall credit strength. As expected, issuance into the ASX-Listed Debt and Hybrid market remains elevated following NAB’s Tier 2 transaction (ASX Code: NABPE), with CBA announcing the offer of a new Additional Tier 1 Hybrid (PERLS IX) early this morning (click here for further details) and Challenger outlining in its half year results that it expects to list a new Capital Notes issue in the first quarter of 2017. The week ahead: 20 February Heritage Bank (1H17) 20 February G8 Education (FY16) 21 February Caltex (FY16) 21 February Scentre Group (FY16) 22 February APA Group (1H17) 22 February Coca Cola Amatil (FY16) 22 February Insurance Australia Group (1H17) 22 February Woolworths (1H17) 22 February Qube Holdings (1H17) 22 February Stockland (1H17) 23 February Alumina (FY16) 23 February Crown Resorts (1H17) 23 February Qantas Airways (1H17) 23 February Ramsay Health Care (1H17) 23 February Peet (1H17) 24 February NextDC (1H17)

Chart 1: Bloomberg AUSBond Composite Index (Monthly) Chart 2: Bonds vs Equities 2016/2017 (Monthly) Chart 3: Term Deposit Review – January