Weekly Market & Currency Developments – From Our Bankers

Business conditions rebound; Aussies aren’t keen to borrow

Consumer sentiment; NAB business survey; Lending; Credit cards

  • Business conditions: The NAB business conditions index rose from a four-year low of +2.6 points to +6.6 points in January (long-term average +5.8 points).
  • Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell 3.4 per cent from two-month highs to 114.1. The index was higher than the longer term average of 113.1 points since 1990 but just below the average of 114.3 points held since 2014.
  • Number of home loans: The number of loans (commitments) by home owners (owner-occupiers) fell by 6.1 per cent in December to a near 6-year low.
  • Lending finance: Total new lending commitments fell from $67.47 billion to $62.70 billion in December.
  • First home buyers: The share of first home buyers eased from a 6-year high of 27 per cent to 26.5 per centin December.
  • Average credit card debt: The average credit card balance recorded an increase of $4.44 (or 0.1 per cent) to $3,264.56 in December. It was the smallest December increase in a decade.

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The business survey has broad implications for investors and the economy. Credit card data is important for the retail and financial sectors. The lending figures have implications for builders, housing-reliant businesses, finance providers, retailers, and companies dependent on consumer and business spending.

What does it all mean?

  • National Australia Bank warned that the December fall in its business conditions index could be an aberration due to seasonal volatility. The bounce-back in January suggests that economic conditions have softened but not collapsed. The latest reading for business conditions is back above the long-term average. In short, conditions are good, but not as great as they were earlier in 2018.
  • Consumer confidence has softened but that is to be expected given the drop in the value of the Aussie dollar and negative news flow. The Reserve Bank change to rate guidance is not “good” news – rates are only cut if the economy needs a boost. And a large group of savers in the community prefer higher interest rates to lower rates.
  • What is clear from the data on lending commitments and credit card data is that Aussies aren’t keen to borrow. Credit card debt generally rises in December, but in 2018 credit card debt barely budged.
  • The only group that seem keen to take on debt are first home buyers. The share of home lending taken by first home buyers is just off 6-year highs.

What do the figures show?

National Australia Bank Business Survey

  • The NAB business conditions index rose from a four-year low of +2.6 points to +6.6 points in January (long-term average +5.8 points).
  • The NAB business confidence index rose from +2.7 points to +3.6 points in January, below the long-term average of 6.0 points.
  • The survey was undertaken from January 24 to 31.
  • The rolling annual average business conditions index fell from +15.0 points to +14.0 points In January, below therecord high of +17.3 points in June, but well above the long-run average of 5.9 points.
  • And the rolling annual average business confidence index fell from +7.1 points to 6.6 points in January, remaining above the long-run average of 5.9 points.
  • Key Components: the index of trading conditions rose from +7.1 points to +9.8 points; employment rose from +3.9 points to +5.0 points; profitability rose from +0.9 points to +4.8 points; forward orders rose from -0.5 points to +2.1 points.
  • Inflationary indicators: The monthly reading of labour costs rose at a 0.6 per cent quarterly rate in January after a 0.8 per cent rise in December. Purchase costs rose at a 0.6 per cent quarterly rate in January after a 0.7 per cent rise in December. Final product prices rose at a 0.4 per cent quarterly rate after a similar gain in December. Retail prices rose at a 0.2 cent quarterly rate in January after a 0.1 per cent rise in December.
  • Capacity utilisation eased from 81.9 per cent to 81.4 per cent in January, but remains above the long-term average of 81.1 per cent.
  • The proportion of firms reporting that they did not require credit fell slightly from 73 per cent to 70 per cent.
  • NAB reported: “Conditions rose in most industries, except for Mining and finance, business & property services which declined in the month, and retail which was unchanged at -14 points – the only industry to record negative conditions. In trend terms, mining remains strongest, followed by recreational & personal services and finance, business & property and wholesale which all remain above the national average.”
  •   “Conditions rose in QLD, WA and SA (which has been volatile) in the month and were flat in NSW and VIC. In trend terms, conditions remain most favourable in the east across the mainland while Tasmania currently reports the strongest conditions of all states.”

Consumer Sentiment

  • The weekly ANZ-Roy Morgan consumer confidence rating fell 3.4 per cent from two-month highs to 114.1. The index was higher than the longer-term average of 113.1 points since 1990 but just below the average of 114.3 points held since 2014.
  • All of five major components of the index fell last week:
    • The estimate of family finances compared with a year ago was down from +14.6 points to +6.5 points;
    • The estimate of family finances over the next year was down from +27.7 points to +25.7 points;
    • Economic conditions over the next 12 months was down from +7.1 points to +3.7 points;
    • Economic conditions over the next 5 years was down from +15.6 points to +11.2 points;
    • The measure of whether it was a good time to buy a major household item was down from +25.3 points to +23.3.
  • The measure of inflation expectations rose from 3.7 per cent to 4.1 per cent.
  • Lending
    •   The Australian Bureau of Statistics reported: “In seasonally adjusted terms, lending commitments to households fell 4.4 per cent in December 2018. This was driven by large falls in the value of lending for owner occupier dwellings (-6.4 per cent) and investment dwellings (-4.6 per cent).
    •   The fall in lending commitments to households follows a 2.4 per cent fall in November 2018.
    •   In seasonally adjusted terms, the value of new lending commitments for owner occupier dwellings is down 16.2 per cent from December 2017, and the value of new lending commitments for investment dwellings is down 27.8 per cent from December 2017.
    •   In seasonally adjusted terms, the value of lending commitments to households fell 3.2 per cent for

Lending

  • The Australian Bureau of Statistics reported: “In seasonally adjusted terms, lending commitments to households fell 4.4 per cent in December 2018. This was driven by large falls in the value of lending for owner occupier dwellings (-6.4 per cent) and investment dwellings (-4.6 per cent).
  • The fall in lending commitments to households follows a 2.4 per cent fall in November 2018.
  • In seasonally adjusted terms, the value of new lending commitments for owner occupier dwellings is down 16.2 per cent from December 2017, and the value of new lending commitments for investment dwellings is down 27.8 per cent from December 2017.
  • In seasonally adjusted terms, the value of lending commitments to households fell 3.2 per cent for refinancing and 2.9 per cent for personal finance excluding refinancing in December 2018.
  • In trend terms, the value of lending commitments to businesses fell 2.5 per cent in December 2018, but is up 3.1 per cent from December 2017.
  • The share of first home buyers fell from a 6-year high of 27 per cent in November to 26.5 per cent in December.

Credit card lending:

  • According to the Reserve Bank, the average credit card balance recorded an increase of $4.44 (or 0.1 per cent) to $3,264.56 in December. It was the smallest December increase in a decade.
  • Of credit cards attracting interest charges, the average outstanding balance fell by 29 cents in December to $1,973.23.
  • The average credit card limit rose by $18.52 (0.2 per cent) to $9,530.57 in December.
  • Usage of credit card limits stood at 34.3 per cent in December (historic low was 33.6 per cent in October 2017).

What is the importance of the economic data?

  • The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a more timely assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
  • The monthly National Australia Bank business survey is valuable in providing a timely reading about the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.
  • Lending to Households and Businesses is released monthly by the Bureau of Statistics and contains figures on new housing, personal, commercial and lease finance commitments. The importance of the data lies in what it reveals about the appropriateness of interest rate settings, confidence and spending levels in the economy.
  • The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.

What are the implications for interest rates and investors?

  • Experts expect interest rates to be unchanged until late in 2019. There is no clear reason to either cut or hike interest rates.
  • The Aussie aversion to debt suggests that there is no guarantee that activity would lift if interest rates were cut again.
  • The aversion to debt creates challenges for banks in generating revenue. But the prudent approach to taking on, and repaying, debt is positive in terms of the bad debt provisioning.

 

Consumer confidence lifts the most in 33 months

Consumer sentiment

  • Consumer confidence: The Westpac/Melbourne Institute survey of consumer sentiment index rose by 4.3 per cent to 103.8 points in February. The monthly increase was the largest in 33 months. A reading above 100 denotes optimism.
  • Unemployment expectations: The unemployment expectations index hit the lowest level in 71⁄2 years at 120 points in February and is down by 0.5 per cent over the year to February.
  • Housing outlook: Melburnian consumers’ views on whether it was a good ‘time to buy a dwelling’ rose by 6.5 per cent to a 5-year high of 125.1 points in February.The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. 

What does it all mean?

  • Consumer sentiment rebounded in February. But the data remains volatile. Having fallen to the lowest level in 16 months in January, the monthly gauge lifted by 4.3 per cent in the latest survey – the biggest increase since May 2016.
  • As always, the housing outlook was a key focus of the monthly survey. Interestingly, Westpac identified that “the February survey also showed a strong 7.4 per cent lift in sentiment amongst consumers with a mortgage”, suggesting that the “Reserve Bank’s recent shift in tone (considered to be more ‘dovish’) has also played a part”.
  • But the release of yesterday’s ANZ-Roy Morgan weekly consumer sentiment survey showed that confidence fell by 3.4 per cent last week (survey conducted February 9-10) “most likely on the back of the Reserve Bank’s downgrade to its economic outlook.” The bottom line is that consumer confidence is good, not great.
  • Back on the housing market, recent data from CoreLogic shows that Melbourne home prices fell by 8.3 per cent in the year to January and are down by 8.7 per cent since prices peaked in November 2017. Despite falling home prices and increased difficulty obtaining a home loan due to tighter credit availability, some Melburnians appear to see some upside to falling home prices. Those who considered it a good ‘time to buy a dwelling’ surged in February with the sub-index at its highest level since February 2014.
  • The Reserve Bank’s Head of Economic Analysis, Alexandra Heath, spoke at the Australian Business Economists Forecasting Conference in Sydney this morning. Household consumption remains a key uncertainty to the economic outlook. Ms. Heath said that “it’s just a bit harder to gauge the momentum” of consumption and whether it can keep outpacing income growth.
  •   Of course continued jobs market strength is critical to the Reserve Bank’s long held view that a pick up in wages growth could offset the drag on household wealth from the property downturn. According to Ms. Heath, liaison with Aussie businesses on their hiring intentions left the Reserve Bank“pretty confident about the next six months or so”, despite the weaker spending environment. Meanwhile consumers’ views on their own job security the best in almost eight years.

What do the figures show?

Consumer confidence

  • The Westpac/Melbourne Institute survey of consumer sentiment index rose by 4.3 per cent to 103.8 points in February. The monthly increase was the largest in 33 months. The sentiment index is above its long-term average of 101.3. A reading above 100 denotes optimism. The survey of 1,200 people was conducted from February 4-9.
  • The current conditions index fell by 3.3 per cent and the expectations index fell by 5.6 per cent.
  • All five of the components of the index rose in February:
    • The estimate of family finances compared with a year ago rose by 5.6 per cent to 89.4;
    • The estimate of family finances over the next year rose by 5.5 per cent to 107.8;
    • Economic conditions over the next 12 months rose by 7.0 per cent to 103.0;
    • Economic conditions over the next 5 years rose by 3.8 per cent to 100.2;
    • The measure on whether it was a good time to buy a major household item rose by 0.3 per cent to 118.6.
  • Housing outlook: A good time to buy a dwelling? The index fell by 1.9 per cent to 112.7, but was up 8.6 per cent on the year. House price expectations fell by 8.4 per cent to 87.8, down by 35.1 per cent on a year ago.
  • Unemployment expectations: Unemployment expectations fell by 2.9 per cent to 120.0 in February to be down by 0.5 per cent over the year.

What is the importance of the economic data?

  • Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.

What are the implications for interest rates and investors?

  • Central banks globally are hoping that economic activity stabilises in the second half of this year following a weak patch of business and manufacturing surveys. Sharemarkets
    and commodity prices have lifted in response to optimism
    about the US-China trade deal and hopes for additionalstimulus from central banks.
  • Next week’s all-important employment and wages reports from the ABS will be closely monitored. The jobs market remains key to the monetary policy outlook, given the desire to see wages growth increase sufficiently to lift inflation. And expectations for tax cuts and additional infrastructure spending, given Australia’s improved fiscal position, are growing ahead of the Federal election.
  • But this is countered by uncertainty around the housing and consumer outlook. Therefore, experts expect interest rates to remain unchanged for the foreseeable future.

 

The Big Builders of 2018

Dwelling Approvals

  • Dwelling approvals: In the 2018 year, the number of dwelling approvals fell by 5.5 per cent to 210,772. The biggest decline was in Western Australia (down 16.9 per cent). The biggest lift in approvals was in the ACT (up by 64.3 per cent). NSW and Victoria dominate the list of regions with both the biggest gains and declines in approvals.

The approvals data has implications for banks, retailers, developers, building and building material companies. h

What do the figures show and what does it all mean?

  • Australia is well past the peak of home building activity in the current cycle. In the year to August 2016, 242,779 approvals were granted by local governments to building new homes – the largest ever total for dwelling approvals in a 12- month period. In previous cycles, annual approval numbers had not passed 200,000 approvals.
  • In 2018, almost 211,000 approvals were granted to build new homes. This figure is still historically high. So while approvals have retreated from highs, there is still a lot of building being done and will be done over 2019.
  • The number of homes currently being built across Australia is only just below record highs.
  • The building cycle tends to start with council approval to build the new dwelling. Finance is secured around the same time. And the actual building phase can take over a year in the case of high-rise apartment developments or 6-12 months in the case of free-standing homes.
  • Different trades and businesses are impacted a different points of the business cycle. So knowledge of which regions are expanding at any point in time is important.
  • As pent-up demand for homes is met, the building cycle will change from new construction to renovation activity. That assumes that people are less inclined to move home when home prices are softening and rather choose to extend or enhance their current home.
  • The Hills Shire (NSW), the ACT and the Central Coast (NSW) were stand-out regions in 2018 in terms of building activity. Encouraged by infrastructure developments, dwelling approvals in the Hills Shire largely doubled in 2018.
  • The Australian Bureau of Statistics (ABS) classifies around 570 local government areas (LGAs). We have ranked the LGAs by the number of dwelling approvals in 2018 and then sorted to find those big building regions with the fastest and slowest growth over 2018.
  • While home building work will remain firm in 2019 in regions like the Hills Shire in NSW, Logan in Queensland and Geelong in Victoria, capital city apartment construction is set to slow. Dwelling approvals in Sydney fell by 60 per cent in 2018 and fell by 37 per cent in Melbourne.
  • In 2018, there were 73 LGAs in Australia where there wasn’t one approval to build a new home. There were 173 regions with fewer than 10 homes approved for construction. The 30 regions with the largest number of dwelling approvals account for half of all new approvals in Australia.
  • The big building regions in 2018 were Blacktown (NSW), Wyndham (Victoria), Brisbane City (Queensland), Port Adelaide-Enfield (South Australia), Swan (Western Australia), Clarence (Tasmania) and Palmerston (Northern Territory).

What is the importance of the economic data?

  • The Bureau of Statistics’ monthly Building Approvals release contains figures on local council approvals to build residential structures such as homes and units as well as commercial premises such as offices and shops. Approval is one of the first stages of the construction ‘pipeline’ and is thus a key leading indicator of future activity. An increase in approvals would point to stronger future activity for construction-related companies.

What are the implications for interest rates and investors?

  • Housing supply has responded to the lift in demand. In other words more homes have been built to meet the increasing demand for accommodation from firm population growth. With more supply or choice, buyers have greater negotiating power over vendors (individual owners and developers). As a result, there is downward pressure on prices – especially prices that lifted to unsustainable levels in Sydney and Melbourne suburbs when demand was well in excess of supply.
  • But interest rates remain low and the job market is healthy and these factors will act as fundamental supports for home prices. As is always the case, housing moves from periods of under-supply to over-supply. Over the coming year new apartment developments will be completed and some buyers may see the market value of their acquisition is below purchase price. Buyers, lenders and developers will need to work through this ‘digestion’ process.
  • Changing conditions in housing markets are being watched carefully by the Reserve Bank (RBA). Some investors may also need to adjust desired rents in order to attract tenants. First home buyers and budding tenants will be amongst the winners in the softening market conditions.
  • The RBA noted in the Statement on Monetary Policy:

..”the number of building approvals has been trending lower for more than a year to be around its lowest level since 2013. Information from the Bank’s liaison program also points to a slowing in the earlier stages of residential development over the past year. In particular, demand for new, off-the-plan apartments in Sydney and Melbourne has declined, driven by weaker demand from domestic investors and foreign buyers. Greenfield land sales have also fallen over the past year. Many property developers cite tighter access to credit as a dampening factor.”

  • In terms of prices & rents the RBA said:

“A large supply of new dwellings in some cities has also placed downward pressure on housing price growth and rents. In general, supply has been concentrated in cities where there has been relatively strong population growth, which should continue to support the underlying demand for new dwellings. In the rental market, the national vacancy rate is a little below average. This partly reflects the low vacancy rate in Melbourne as population growth continues to absorb the supply of new dwellings. In contrast, the vacancy rate in Sydney has risen, particularly in the middle-ring suburbs as new supply has come online; advertised rent inflation has declined. In other capital cities, rental vacancy rates have fallen and advertised rents have generally risen.”

  • The Reserve Bank recently changed interest rate policy from a tightening bias to a neutral stance. One reason for the change was the “uncertainty” about how the changing housing conditions will affect consumer spending and employment.
  • To date, builders, developers and lenders haven’t reported major issues with defaults or delinquencies from new developments. Mirvac recently reported that it settled 1,067 residential lots in the six months to December and was on track to meet the target of 2,500 residential lot settlements in 2018/19. Mirvac noted “Defaults in the period remained below 2 per cent.” AV Jennings noted a low level of unsold stock and didn’t note any major issues with settlements.
  • Experts expect interest rates to be unchanged for the foreseeable future.

 

Investor Signposts: Week Beginning February 17 2019

Australia: Job market and wages growth in the spotlight

  • The December quarter Wage Price Index release dominates the local agenda in the coming week. The semi- annual update on average weekly earnings will also be keenly observed together with the January jobs report and Friday’s testimony from the Reserve Bank Governor.
  • The week kicks off on Tuesday when the regular weekly reading on consumer confidence is published by ANZ and Roy Morgan. And the minutes will be released from the Reserve Bank Board meeting held on February 5. We expect interest rates to remain on hold for the foreseeable future, provided there is continued labour market strength to cushion households from the property downturn.
  • Also on Tuesday, the Australian Bureau of Statistics (ABS) releases tourism and migration data in the Overseas Arrivals and Departures publication for December. Tourists from China hit record highs over the year to November, but annual growth of Chinese inflows is the slowest in 81⁄2 years.
  • On Wednesday, the Bank’s Business Sales Indicator is released together with the Wage Price Index (WPI). 
  • According to the ABS, the WPI rose by 0.6 per cent in the September quarter pushing annual growth to 31⁄2-year highs of 2.3 per cent. Including bonuses wages rose by 2.7 per cent over the year. According to the Department of Jobs and Small Business Enterprise Bargaining Report, average annualised wages increased by 3.2 per cent over the year to September.
  • Also on Wednesday, the Department of Jobs and Small Business will release the Skilled Vacancies data for January – a key leading index on the labour market.
  • On Thursday, the all-important January employment report is released. Employment growth was strong in 2018, but was drivenlargely by part-time jobs in November and December. Unemployment rates are at record lows of near 4 per cent in NSW and Victoria. CBA economists’ forecast 10,000 jobs to be added with the unemployment rate steady at 5 per cent.
  • Also on Thursday, the CBA and Markit issues ‘flash’ February factory and services activity indexes and the ABS releases more wages data. The average weekly earnings figures are released every six months and are important as they provide dollar estimates of wages in the economy across states and industries.
  • On Friday, Reserve Bank Governor Philip Lowe will provide his semi-annual testimony before the House of Representatives Standing Committee on Economics.

Overseas: The Federal Reserve back in focus

  • The recent US government shutdown is continuing to impact release dates for key economic data. US financial markets are closed on Monday as George Washington’s Birthday/President’s Day public holiday is observed.
  • The week begins on Tuesday in the US when the National Association of Home Builders (NAHB) releases its monthly index. Builder sentiment rebounded off two-year lows in January after mortgage rates fell.
  • On Wednesday in the US, minutes of the last Federal Reserve meeting are scheduled.
  • On Thursday in the US weekly jobless claims data (claims for unemployment insurance) is issued alongside durable goods orders, existing home sales, the Conference Board Leading Index and the Philadelphia Federal Reserve manufacturing survey.
  • Also on Thursday, Markit issues ‘flash’ purchasing manager indexes for both the services and manufacturing sectors for the month of February. Leading business surveys weakened in December and January, especially in China and the Eurozone, contributing to a swathe of economic growth forecast downgrades and a more ‘dovish’ tone in global central bank commentary.
  • And on Friday in China the latest house price data is due. House prices are seen expanding at a 9.4 per cent annual growth rate in January, down from 9.7 per cent in December.

Financial markets

  • The Australian corporate reporting season reaches its peak with a host of major companies expected to release earnings results, including:
  • On Monday: Altium, Ansell, Baby Bunting, Brambles, GWA, Netwealth, nib and Prime Media.
  • On Tuesday: Arena REIT, Beacon Lighting, BHP, Blackmores, Charter Hall REIT, Coles, Emeco, IOOF, Monadelphous, OceanaGold, Oil Search, Senex Energy and Seven West Media.
  • On Wednesday: APA, Asaleo Care, Corporate Travel Management, Crown Resorts, Domino’s Pizza, Euroz, Fortescue Metals, Greencross, Lovisa, Moelis, Regis Resources, Saracen Minerals, St Barbara, Vocus, Western Areas, WiseTech Global, Woolworths and WorleyParsons.
  • On Thursday: APN Property, Coca-Cola Amatil, Flight Centre, IRESS, MYOB, Nine Entertainment, Origin Energy, Perpetual, Qantas, Reject Shop, Santos, Simonds, Southern Cross Media, Star Entertainment, Sydney Airport, Viva Energy, Webjet, Wesfarmers and Yowie.
  • On Friday: AfterPay Touch, Alumina, Ardent Leisure, Automotive Holdings, Charter Hall, Clean TeQ, Kogan.com, Michael Hill, Mortgage Choice, Reece, Regis Healthcare, Resolute Mining and Village Roadshow.

DISCLAIMER

This Freightplus article contains information obtained from sources believed to be reliable and has been prepared in good faith and with all reasonable care. Freightplus makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this website.

Neither Freightplus (Australia) Pty Ltd, its related entities, nor any of its providers of information, have any liability to the user, or any other third party, for the accuracy of the information or models contained in this article, or for any errors or omissions therein, nor will Freightplus (Australia) Pty Ltd or any of its providers of information have any liability for the use, interpretation or implementation of the information or models contained herein by any person



Archives

Freightplus. Worldwide.

LOOKING TO MOVE MINING & CONSTRUCTION MACHINERY?
DD
Translate »