Geelong Chamber of Commerce breakfast. Westpac Institutional Bank Presented by Bill Evans August 2018

Transcription

1 Geelong Chamber of Commerce breakfast Westpac Institutional Bank Presented by Bill Evans August 18

2 Current Forecasts July 17 Latest Dec-17 Mar-18 Jun-18 Dec-18 RBA Cash FED FUNDS year swap AUD/USD

3 Current forecasts August 18 Latest Sept 18 Dec 18 Jun 19 Dec 19 RBA Cash Aus 1yr Fed Funds US 1yr yr swap AUD/USD Source: Westpac Economics. 3

4 October, 17 Rate outlook (first hike) - 21 forecasters 6 forecasters 2Q 18 (or earlier) forecasters 3Q 18 4 forecasters 4Q 18 WBC Market pricing : 3 hikes No move 18 or 19 by end 19 Current market pricing % of one hike by end 19 Source: Bloomberg; Westpac Economics. 4

5 Westpac: rate differential negative (July) % Market Westpac Sources: Westpac Economics *market prices implied rates as at 21/7/17 expected cash rate level % Dec 17 Jun 18 Dec

6 Westpac: rate differential negative % -.38 Market -.38 Westpac Sources: Westpac Economics, Bloomberg *market prices implied rates as at 24/7/18 expected policy rate differential % Jun 18 Dec 18 Jun 19 Dec 19 6

7 S&P PE ratio and US 1yr bond Ratio S&P PE ratio lhs US 1yr bond inverted rhs % (inverted) Jan Jan 8 Jan 11 Jan 14 Jan 17 Jan 7 Westpac forecasts Sources: Bloomberg, Westpac Economics 4

8 Australian GDP growth outlook % yr RBA, GDP Westpac GDP RBA consumer Westpac consumer Source: ABS, RBA Statement on Monetary Policy, Westpac Economics 8

9 Dwelling approvals 2 ' non high rise (lhs) total annualised (rhs) high rise (lhs) ' WBC f/c s 6% 1 underlying demand *3mth avg, dotted lines are monthly 16% Jun-3 Jun-6 Jun-9 Jun-12 Jun-1 Jun-18 9

10 Dwelling approvals: NSW ' non high rise (lhs) total annualised (rhs) *3mth avg, dotted lines are monthly high rise (lhs) Jun-3 Jun-6 Jun-9 Jun-12 Jun-1 Jun-18 ' WBC f/c s 24% 42%

11 Dwelling approvals: Vic ' non high rise (lhs) total annualised (rhs) *3mth avg, dotted lines are monthly high rise (lhs) Jun-3 Jun-6 Jun-9 Jun-12 Jun-1 Jun-18 ' WBC f/c s +4% 7% +1%

12 Vic housing stock deficiency ' estimated housing stock deficiency dwelling approvals (annualised) Sources: ABS, Westpac Economics underlying demand - Jul-93 Jul-97 Jul-1 Jul- Jul-9 Jul-13 Jul-17 ' f/c s

13 Australia: consumer spending vs labour income % ann Labour income Consumption -4 Dec-97 Dec-1 Dec- Dec-9 Dec-13 Dec Sources: ABS, Westpac Economics real LR avg: 3.3%yr % ann Consumption: 17 Q4: 1.%qtr, 2.9%yr f/cs to end

14 Household labour income: decomposed %ann 'X' factor^ hours worked wages total *nominal ^residual including structural and compositional shifts not Sources: ABS; Westpac Economics %ann Westpac Dec-99 Dec-2 Dec- Dec-8 Dec-11 Dec-14 Dec

15 Household savings rate % income Sources: ABS, Westpac Economics Latest, Mar 18: 2.1% Average 9 to 1: 7.3% % income Mar-94 Mar-98 Mar-2 Mar-6 Mar-1 Mar-14 Mar

16 Election uncertainty & employment %yr 6mth annualised pace Sep 13 election Jul 16 election Sources: ABS, Westpac Economics. %yr -2 Jun-12 Jun-13 Jun-14 Jun-1 Jun-16 Jun-17 Jun

17 Newspoll: recent leads hold for multiple years 6 6 % LNP 87 seats ALP 83 seats ALP 72 seats LNP 9 seats LNP 76 seats % Jan-3 Jan-7 Jan-11 Jan-1 17 Sources: Newspoll, Westpac Coalition Labor 4 4 3

18 Marginal seats* by state 18 Source: ABC. *Marginal Seats being defined as margin of <= 3%, Data may change pending finalisation of new electoral boundaries in Victoria, SA and ACT in June. Coalition Labor NSW VIC QLD SA WA

19 ALP Policy Shifts (savings over 1 years) Company Tax: Franking Credits: Negative Gearing/Capital gains: Trusts/Income splitting: Budget deficit levy: Total $3 billion $6 billion $49 billion $17 billion $22 billion $18 billion Source: Westpac Economics 19

20 China debt: developed world scale % of GDP June 17 government household corporate % of GDP 1 *China government is nominal value Source: BIS, Westpac Economics Australia US China

21 Value of finance approvals by segment $bn 'upgraders'* investors* FHBs *excludes refinancing Sources: ABS, RBA, Westpac Economics May-98 May-2 May-6 May-1 May-14 May-18 $bn year to May 4%yr 22%yr +32%yr

22 Housing: investor credit stalls 3 mth % chg, annl sd 3 mth % chg, annl sd Sources: RBA, Westpac Economics Owner-occupiers Investors 3 mth annls d, latest: Owner-occupiers: 7.% Investors:.1% Total: 4.6% Investor credit Jun-2 Jun- Jun-8 Jun-11 Jun-14 Jun

23 Credit outlook: slowing in 18 & 19 % ann % ann -1-1 Dec-97 Dec-1 Dec- Dec-9 Dec-13 Dec-17 Dec updated: Apr 18 Sources: RBA, Westpac Economics Housing Westpac f/cs end

24 Population growth international EU Developed UK US Canada NZ World Developing Australia 24 % ann , avg 1.37 Source: AFR

25 4 Population growth: NSW lags VICTORIA % ann Sources: ABS, Westpac Economics. % ann 4 3 NSW Tas Vic Australia Jun-8 Aug-11 Oct-14 2 WA Qld SA Jun-8 Aug-11 Oct-14

26 Population growth: Aus, Vic, Geelong % ann Vic (2.3%yr, 143k) Geelong (2.7%yr, 7.6k)* Aust (1.6%yr) *annual observations Sources: ABS, Westpac Economics. % ann Dec-86 Dec-91 Dec-96 Dec-1 Dec-6 Dec-11 Dec

27 Housing affordability: Vic 1 1 % units houses long run averages improve deteriorate % Mar-88 Mar-93 Mar-98 Mar-3 Mar-8 Mar-13 Mar *%income required to accumulate a 2% deposit and service mortgage of 7% of the median priced dwelling avg over yr pre-purchase period and yr post purchase Sources: CoreLogic, RBA, ABS, Westpac-Melbourne Institute latest

28 Australian dwelling prices: major cities % Sydney Melbourne Brisbane Perth 6mth annualised * all dwellings Sources: CoreLogic, Westpac Economics Jul-1 Jul-11 Jul-12 Jul-13 Jul-14 Jul-1 Jul-16 Jul-17 Jul-18 %

29 Australian dwelling prices: major capital cities % * all dwellings Sources: CoreLogic, Westpac Economics - Jul-93 Jul-98 Jul-3 Jul-8 Jul-13 Jul mth annualised, nominal Sydney Melbourne %

30 Dwelling prices: Geelong holding up ann% Melbourne inner middle outer Geelong other Source: APM, Westpac Economics rest of Vic *qtly, smoothed, based on weighted avg of postcode median prices ann%

31 Dwelling prices: Geelong ahead of the Rest index Mar-93 Mar-98 Mar-3 Mar-8 Mar-13 Mar Melbourne Geelong Rest of Vic *indexes based on weighted avg of postcode median prices (all dwellings); Mar-93=1, all figures to Mar 18 Sources: APM, Westpac Economics index +13% +1% +9%

32 Dwelling prices: Geelong tops Regionals Mar-93 Mar-98 Mar-3 Mar-8 Mar-13 Mar index Melbourne Geelong *indexes based on weighted avg of postcode median prices (all dwellings); Mar-93=1, all figures to Dec 17 Sources: APM, Westpac Economics Shepparton Rest of Vic index +13% +1% +9% +7%

33 Dwelling prices: Vic index Mar-93 Mar-98 Mar-3 Mar-8 Mar-13 Mar Melbourne Geelong *indexes based on weighted avg of postcode median prices (all dwellings); Mar-93=1, all figures to Dec 17 Sources: APM, Westpac Economics Ballarat Rest of Vic index +13% +1% +1% +%

34 Sydney prices: by property value % top 2% middle % bottom 2% *all dwellings, seasonally adjusted by Westpac; rolling 3mth ann d %ch; dotted lines show mthly Sources: CoreLogic, Westpac Economics macro-prudential tightening Jul-1 Jul-12 Jul-14 Jul-16 Jul-18 %

35 Melbourne prices: by property value % top 2% middle % bottom 2% *all dwellings, seasonally adjusted by Westpac; rolling 3mth ann d %ch; dotted lines show mthly Sources: CoreLogic, Westpac Economics macro-prudential tightening Jul-1 Jul-12 Jul-14 Jul-16 Jul-18 %

36 9 8 Auction clearance rates % Sydney Melbourne % long run averages Jul-88 Jul-93 Jul-98 Jul-3 Jul-8 Jul-13 Jul *seasonally adjusted by Westpac Sources: APM, CoreLogic, Westpac Economics last 3 weeks 4

37 Rental markets: vacancy rates 8 % % Sydney Brisbane Melbourne Perth 7 *annual avg, dotted lines are seasonally 6 4 adjusted qtly advanced 6mths national avg since Source: REIA, Westpac Economics Mar-93 Mar-98 Mar-3 Mar-8 Mar-13 Mar

38 Interest only housing loans 38 % total own. occ. investor major banks other 3% interest only limit introduced *interest only % total new loans 3% interest only limit introduced Sources: RBA, APRA, Westpac Economics Dec-8 Dec-11 Dec-14 Dec-17 Dec-8 Dec-11 Dec-14 Dec-17 %

39 Short term funding spreads (3 month) 6 4 bps BBSW-OIS LIBOR-OIS TBILLS-OIS bps Sources: Bloomberg, Westpac Economics -4 Jan 11 Jan 13 Jan 1 Jan

40 Loan versus deposit growth: majors % 4 6-month annualised % Source: APRA Loans Deposits May- May-7 May-9 May-11 May-13 May-1 May

41 2 1 1 Deposit growth: total vs households % ann % ann Data, quarterly Gov t handouts Total deposits Household deposits f/cs end Sources: ABS, Westpac Economics Mar-98 Mar-2 Mar-6 Mar-1 Mar-14 Mar-18 41

42 Deposit growth( total) offshore leakages % % Source: APRA;MACROBOND 6mth annualised change Financial corporates (lhs) Non-financial corporates (rhs) May- May-7 May-9 May-11 May-13 May-1 May

43 8 6 Bills/OIS forward curves- to remain elevated bps bps Dec end Mar end Jun end Current (24 July) BBSW 43 First bill future Sources: Bloomberg, Westpac Economics Dec Mar Jun Sep Dec Mar

44 It Disclaimer has been dry, little chance of improvement 44

45 US tariffs primarily target China $USbn 4 value of trade tariffs imposed on Announced Implemented Retaliation Source: Westpac Economics *Steel & aluminium affect all; other measures are bilateral against China China Canada Europe Mexico $USbn

46 China debt: developed world scale % of GDP June 17 government household corporate % of GDP 1 *China government is nominal value Source: BIS, Westpac Economics Australia US China 46

47 China credit in 18: a wholesale change RMB trn year-to-date lending RMB trn Source: CEIC Jun-17 Jun-18 Total finance Bank Non-bank

48 China s Shadow Banking System Funded by wealth products; banks; insurance Supports Offshore investments Property investors Property developers Commodity investors Local Government (8% of Infrastructure) Corporates, outside banking system Source: Westpac Economics 48

49 Equity markets jittery but sell off contained Index Sources: Bloomberg, JPM, Westpac Economics. Major stock indexes China US Europe 8 Jan 1 Jan 16 Jan 17 Jan 18 Index

50 Number of foreign real estate approvals s s Source: FIRB, Westpac Economics

51 US 1 year minus fed funds rate 6 bps Sources: Bloomberg, Westpac Economics bps Westpac forecasts Jan 71 Jan 78 Jan 8 Jan 92 Jan 99 Jan 6 Jan 13 Jan 1

52 Service exports, Australia Mar-94 Mar-98 Mar-2 Mar-6 Mar-1 Mar-14 Mar-18 Mar-22 2 $bn Sources: ABS, Westpac Economics * Business services: $21bn, including: legal & prof services $.3bn financial services $4.3bn IT & Telecomm $3.8bn Intellectual property rights $1.1bn other, $6.3bn Rolling annual, nominal Total service exports: +7% yr $bn Education +14% Leisure travel Business services* +1% Transportation Business travel

53 International students numbers by state Index* VIC NSW Australia QLD WA Commencements, higher education Education exports (revenue) 3yrs to 16/17 Australia 1% Index* VIC NSW Aus Qld WA Sources: AEI.gov.au, Westpac Economics *2 commencements = 1

54 8 6 4 Total Infrastructure: work done, by state $bn Sources: ABS, Westpac Economics NSW Vic SA $bn +28%yr +%yr %yr 2 Mar-6 Mar-1 Mar-14 Mar-18 4

55 4 3 Office approvals: take-off, led by Victoria $bn 12 month sum NSW Victoria WA Qld $bn May-8 Sources: ABS, Westpac Economics May-14 May-8 May-14

56 3 1 CBD office markets: vacancy rates % Sydney CBD Melbourne CBD Canberra Source: PCA OMR 2/18 Brisbane CBD Perth CBD Adelaide CBD %

57 Employment by major sector Growth in the 2 years to May 18 Education & health White collar Construction Production employment 91 9 Leisure & hospitality Retail & wholesale distribution Sources: ABS, Westpac Economics change in employment

58 Conclusion RBA on hold in 18 and 19; markets and RBA still expect rate hikes. House and unit prices in Melbourne to fall further; Geelong holding up. Headwinds: household sector; housing; market rates; tight credit; election. No RBA rate relief ; banks?; affordability; regulation; Bright spots: infrastructure; service exports; population growth; lower AUD. RBA/FED margin to peak at 137. basis points by June 19. AUD to USD.7; bond spread to 4 bp s. US bond rates likely to reach 3.% in 19 H1 drag on equity market. US yield curve to go inverse by 21 signalling US recession. China to slow more than anticipated through 19 - credit; equities. Global growth slows in 19/ even without trade war. 8

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