by Craig James
A week ago (August 27) the Australian Prudential Regulation Authority released a new publication detailing the property exposures by authorised deposit-taking institutions – effectively banks, building societies and credit unions.
APRA reported that ADIs had $1.13 trillion of outstanding housing loans as at June 30, up $76 billion or 7.3 per cent over the past year. Owner-occupied loans (mortgages of people living in the homes) accounted for around two-thirds of residential term loans to households. Owner-occupied loans were $755 billion, an increase of $48.7 billion (6.9 per cent) on a year ago.
Investment loans accounted for just a third of residential term loans but they have lifted at a faster pace over the past year. Investment loans were $373 billion, up $27.7 billion (8.0 per cent) on a year ago.
There were 4.8 million outstanding home loans at that date, up 5.4 per cent over the year. However the average balance of $230,000 was up just 2.2 per cent over the year. And the major banks accounted for 81 per cent of all the outstanding loans.
In the June quarter there was a large lift in home loan approvals – up 28 per cent to $79 billion. Encouragingly loans with a loan to value ratio (LVR) of less than 60 per cent recorded the biggest rise (40.3 per cent) but still there was a 17.5 per cent lift of loans with a LVR of over 90 per cent. Clearly that mix of lending will need to be watched as the housing recovery continues.
The week ahead
The “Spring Tsunami” hasn’t yet ended in Australia. Over the coming week at least another eight economic indicators are due for release in Australia. In the US, the key economic data isn’t released until late in the week. And in China key economic data is released early in the week including inflation, production, investment and retail sales.
In Australia, the week kicks off on Monday with two indicators: housing finance and job advertisements. The housing finance data are new commitments made by lenders for the purchase or building of homes and renovations. We expect that the number of loans made to owner-occupiers (those who want to live in the homes) rose by 1.5 per cent in July, extending the recovery that is underway.
In the past, the job advertisement figures were valuable as a leading indicator of employment. But now more jobs are posted on individual company websites, social media such as LinkedIn, Facebook and even Twitter, and job placement agencies. But the jobs ads data is still watched for turning points. Still, hiring of staff will only recover once the election is out of the road.
On Tuesday the National Australia Bank business survey is released. The survey covers key business indicators, a reading on business confidence as well as gauges on prices, wages and finance. The indicators of confidence and conditions have basically trended sideways over 2013.
On Wednesday results of the monthly Westpac/Melbourne Institute consumer confidence survey are released. (Roy Morgan compiles a more regular weekly survey). Clearly the election outcome will determine how consumer confidence responds. The survey is conducted in the four days up to September 8.
Also on Wednesday the Bureau of Statistics (ABS) will release lending finance figures – includes housing, personal, business and lease loans. There are tentative signs that lending is picking up again.
On Thursday the ABS releases the monthly employment figures. Overall we expect that the number of jobs rose by around 12,000, broadly matching new entrants to the job market. As a result we expect that unemployment remained unchanged at 5.7 per cent.
On the same day the Reserve Bank releases monthly data on credit and debit card lending. Consumers are super conservative – preferring to use their own money (debit cards) rather than use credit to make purchases.
Overseas, the week kicks off on Sunday when China releases its exports and imports data. Then on Monday China’s National Bureau of Statistics issues inflation data for August – both consumer and producer prices. Inflation is well contained at present with producer prices still falling, not rising.
On Tuesday the monthly batch of Chinese economic indicators are released – retail sales, production and investment. There are signs that Chinese economic activity is gaining pace and investors would want to see further confirmation of that trend.
In the US, the week kicks off on Monday with consumer credit figures and the employment index, while on Tuesday the usual weekly chain store sales reports are due.
On Wednesday, the weekly data on mortgage transactions – purchases and refinancing – is issued together with wholesale sales and inventories.
On Thursday the weekly data on claims for unemployment insurance is issued together with the monthly Federal Budget data and August figures on import and export prices.
And finally on Friday investors will have their first chance during the week to dissect some “top shelf” economic indicators. Not only are retail sales figures released but also data on producer prices (PPI), the latest consumer sentiment figures and data on business inventories. Analysts currently expect that retail sales rose by 0.3 per cent in August while the core PPI (excludes food and energy prices) may have edged 0.1 per cent higher.
Sharemarket, interest rates, currencies & commodities
On September 3 the All Ordinaries Accumulation index hit 5½ year highs. The All Ords Accumulation index is probably the best way to gauge how our sharemarket is performing. Because not only does the index measure share prices, it also measures all-important dividends.
That reading 5½ years ago was the record high – a reading of 42,946.1 set on November 1. After the retracement on September 4, the All Ords Accumulation index is now 2.7 per cent below that high point. So sometime in the next few weeks, it is likely that new records will be set, and that will certainly be something to celebrate.
It is also worth noting that Australia’s sharemarket capitalisation hit $1667 billion on September 3 – the highest since December 17 2007.
What chance of another rate cut? The overnight index swap market has priced the cash rate at 2.40 per cent in nine months’ time – suggesting a 40 per cent chance of a rate cut. In 12 months’ time the cash rate is seen at 2.4075 per cent. The implied yield on December 90-day bank bills stands at 2.55 per cent while the implied yield on March 2014 bank bills stands at 2.57 per cent.
Upcoming economic and financial market events
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