Publication date: 5 June 2015 | Covering: May 2015
Monthly Briefing
- Fed April 28–29: Holds 0–0.25%; characterises Q1 weakness as “transitory”; June hike off table; September still live
- US Q1 GDP -0.7% annualised: weather, port strikes, dollar blamed; rebound expected Q2
- Greece: Syriza government negotiations with Troika stall; IMF payment June 5 approaching; capital flight accelerating
- Oil recovering to mid-US$60s/barrel; US shale rig count falling; supply adjustment under way
- 10-year US Treasury yield rises to 2.40%: “bund tantrum” — German yields surge dragging US rates higher
- BOJ easing; Jamaica NHT J$6.5 million ceiling; rates 0, 2, 4 per cent; IMF EFF
Fed Holds; Q1 GDP Contraction Seen as Temporary
The Federal Open Market Committee held the federal funds rate at 0 to 0.25 per cent at its April 28 to 29 meeting, following a first estimate of first-quarter US GDP growth of minus 0.7 per cent annualised — subsequently revised to negative 0.2 per cent — the first quarterly contraction since the first quarter of 2014. The Committee’s statement attributed the weakness to “transitory factors”, specifically the severe winter weather that disrupted economic activity across the northeast and midwest, the West Coast port dispute that snarled exports and imports for months, and the appreciation of the dollar that was weighing on manufacturing and agricultural exports. The Committee maintained its expectation that the economy would return to a moderate pace of expansion and that conditions for liftoff would eventually be met. June as a date for the first rate increase had been effectively ruled out given the weak first-quarter backdrop, and September and December emerged as the two live dates remaining in 2015. The labour market continued to perform reasonably well despite the GDP softness, suggesting the Q1 contraction was indeed dominated by transitory factors rather than a fundamental slowdown in domestic demand.
Greek Negotiations Stall; IMF Payment Looms
Greece’s negotiations with its creditors — the IMF, ECB, and European Commission, collectively known as the ‘institutions’ replacing the former ‘Troika’ label — remained deadlocked through May, with significant gaps remaining on pension reform, labour market liberalisation, and the primary fiscal surplus target. The SYRIZA government led by Alexis Tsipras had been elected in January on a platform of renegotiating the bailout terms, but the creditors showed limited willingness to accommodate the demand for significant concessions. Capital flight from Greek banks accelerated through May as confidence in the ability to reach a deal before the country’s cash ran out waned: deposit outflows were reported to be running at €2 billion or more per week, and the ECB’s Emergency Liquidity Assistance to Greek banks was being raised incrementally to prevent the banking system from collapsing. An IMF payment of €300 million was due on 5 June — the day this edition publishes — raising immediate concerns about whether Athens would be able to meet it.
Oil Recovery and the ‘Bund Tantrum’
Oil prices recovered to the mid-US$60s per barrel through May, with Brent crude rising from its January lows driven by falling US rig counts and evidence that the market was beginning to self-correct: at US$45 to US$50 per barrel, many US shale projects were no longer economical, and the rig count had fallen by more than 50 per cent from its peak. The recovery was cautious, with uncertainty about the pace of supply adjustment and the Iran nuclear negotiations’ potential to bring additional Iranian barrels to market. A notable global market development in May was the sharp sell-off in German government bonds — the “bund tantrum” — in which 10-year German yields surged from near zero to above 0.70 per cent in a matter of weeks, dragging US Treasury yields higher in sympathy. The US 10-year rose to around 2.40 per cent in May, its highest since late 2014, reflecting both the global bond market correction and improving US economic expectations. For Jamaica, higher US long-term rates — even as short-term rates remained near zero — had implications for the external financing cost of any new international bond issuance.
Jamaica Mortgage Market in May
Jamaica’s mortgage market showed continued steady improvement through May 2015. The spring property market season was generating healthy application activity across both the NHT and commercial segments. The BOJ’s easing monetary policy continued to reduce domestic lending costs at the margin, and the IMF EFF programme’s macroeconomic discipline maintained a constructive external financing environment. The NHT’s J$6.5 million individual ceiling and tiered rates of 0, 2, and 4 per cent continued to provide the primary accessible pathway to home ownership for qualified contributors. Jamaica’s economic recovery — while modest in pace — was increasingly visible in tourism performance and business confidence, providing a more positive backdrop for mortgage market development than the difficult years of 2012 to 2013.
Looking Ahead
The Greek situation is at a critical juncture as this edition publishes: whether Athens can meet the 5 June IMF payment without a deal will be known within hours. The Fed’s June 16 to 17 meeting will be the next central bank policy event, with markets expecting a hold and attention focused on the updated dot plot and any signals about the September meeting. For Jamaica, the approaching summer diaspora season and the tourism sector’s performance through the second quarter are positive near-term drivers for the property and mortgage market. The BOJ’s continuing monetary easing is expected to provide further gradual support to domestic lending conditions through the second half of 2015.
Mortgage & Housing Finance Disclaimer: This publication is for general information only and does not constitute mortgage, financial, legal or investment advice. Mortgage products, lending criteria, interest rates and borrowing costs vary between lenders and may change without notice. Readers should obtain independent advice from a qualified mortgage adviser, financial adviser or legal professional before making financial or property decisions.
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