A division of Westpac Banking Corporation ABN 33 007...
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A division of Westpac Banking Corporation ABN 33 007 457 141 Perspectives on credit & the foreign exchange market Melbourne Institute November 2003 Bill Evans Global Head of Economics
Transcript of A division of Westpac Banking Corporation ABN 33 007...
A division of Westpac Banking Corporation ABN 33 007 457 141
Perspectives on credit & the foreign exchange market
Melbourne Institute November 2003Bill EvansGlobal Head of Economics
Current forecasts - NOVEMBER 2003
latest Dec-03 Jun-04 Dec-04Cash 5.00 5.25 5.50 5.503yr 5.75 6.00 6.50 6.0010yr 5.90 6.10 6.75 6.40Fed Funds 1.00 1.00 1.00 1.5010yr 4.35 4.50 4.80 5.40AUD/USD 0.71 0.72 0.77 0.74EUR/USD 1.18 1.17 1.21 1.25
Australian growth to converge with US- 4.25% expected in 2004
-4
-2
0
2
4
6
8
10
Dec-80 Dec-84 Dec-88 Dec-92 Dec-96 Dec-00
% ann
-4
-2
0
2
4
6
8
10% ann
US GDP growthAustralian GDP growth
forecast
Happiness all round, for consumers & business
60
70
80
90
100
110
120
130
Sep-80 Sep-85 Sep-90 Sep-95 Sep-00
index
20
30
40
50
60
70index
Consumer sentiment (lhs)
business expectations (rhs)
Healthy job outlook, Westpac outlook suggests strong employment
-60
-50
-40
-30
-20
-10
0
10
20
30
Mar-80 Mar-84 Mar-88 Mar-92 Mar-96 Mar-00 Mar-04
% ann
-6
-4
-2
0
2
4
6% net
Westpac labour market composite - adv 2 qtrs (lhs)
employment growth (rhs)
Credit growth remains excessive in housing as business bounces back
-8
-4
0
4
8
12
16
20
24
Jul-90 Jul-92 Jul-94 Jul-96 Jul-98 Jul-00 Jul-02
% ann
-8
-4
0
4
8
12
16
20
24% ann
personal housing business
Investor finance for housing: almost $7bn/month
0
2
4
6
8
Sep-91 Sep-93 Sep-95 Sep-97 Sep-99 Sep-01 Sep-03
AUDbn/mth
0
2
4
6
8AUDbn/mth
total investor finance
finance for construction
Household debt running ahead of housing prices Ratio of debt/prices to income/earnings
0
50
100
150
200
250
300
Jun-86 Jun-90 Jun-94 Jun-98 Jun-02
index
0
50
100
150
200
250
300index
prices to wages/salariesdebt to income
Yields on investment properties reach forty year low pointing to industry stress
2
4
6
8
10
12
14
1970/71 1976/77 1982/83 1988/89 1994/95 2000/01
%
3.0
3.5
4.0
4.5
5.0
5.5
6.0%
earnings yield (lhs)
rental yield (rhs)
Property PE ratios at 40 year highs: equities - better value
5
10
15
20
25
30
35
1962/63 1970/71 1978/79 1986/87 1994/95 2002/03
PE
5
10
15
20
25
30
35PE
housing equities
A surge of private units is hitting the market - expect activity to fall, prices to ease
0
5
10
15
20
Jun-85 Jun-89 Jun-93 Jun-97 Jun-01
qtr '000
0
5
10
15
20qtr '000
completed
commenced
Net immigration boosts population growth -supports growth in underlying demand
0
50
100
150
200
250
300
350
Jun-83 Jun-87 Jun-91 Jun-95 Jun-99 Jun-03
'000
0
50
100
150
200
250
300
350'000
net immigration - annualnet immigration (ANU estimates)population change - annual
Household debt servicing ratio - highly vulnerable to higher ratesRatio of payments to household income
0
2
4
6
8
10
12
14
16
Dec-80 Dec-84 Dec-88 Dec-92 Dec-96 Dec-00 Dec-04
%
0
2
4
6
8
10
12
14
16%
interest
principal plus interestprincipal
WBC f/c has cash rate at 5.5% in first half of 2004
Investors are very exposed to rates but owner occupiers look comfortable - confidence of investors to be tested
0
10
20
30
40
50
60
1977/78 1981/82 1985/86 1989/90 1993/94 1997/98 2001/02
%
0
4
8
12
16
20%
investors - interest only (lhs)
owner occupiers (rhs)
Australians’ high equity in housing assets, provides new source of spending support & credit growth
60
65
70
75
80
85
90
95
Mar-53 Mar-65 Mar-77 Mar-89 Mar-01
%
60
65
70
75
80
85
90
95%
US Aust
source: Westpac Economic Research
Housing equity injection/withdrawal, (% of disposable income) points to consumers accessing more housing equity
-10-8-6-4-202468
10
Mar-80 Mar-83 Mar-86 Mar-89 Mar-92 Mar-95 Mar-98 Mar-01 Mar-04
%
-10-8-6-4-20246810%
0
50
100
150
200
250
Dec-78 Dec-81 Dec-84 Dec-87 Dec-90 Dec-93 Dec-96 Dec-99 Dec-02
index
0
50
100
150
200
250index
Japanese residential property prices - rise 150% in 5 years and fall 65% later
Established house prices marching upwardsrise 100% in 7 years
0
50
100
150
200
250
Dec-87 Dec-90 Dec-93 Dec-96 Dec-99 Dec-02
index
0
50
100
150
200
250index
MelbourneBrisbane
capital city avgSydney
0
2
4
6
8
Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02
% pa
0
2
4
6
8% pa
US
Australia
forecast
Australian rates to increase in early 2004 - to move well before US
Australia’s current fixed rate yields are pricing in more rate hikes - but will go higher
3
4
5
6
7
8
9
Apr-96 Apr-98 Apr-00 Apr-02 Apr-04
%
3
4
5
6
7
8
9%Australian 3 yr bondAustralian official cash rate
forecast
-6.0
-4.0
-2.0
0.0
2.0Dec-80 Dec-84 Dec-88 Dec-92 Dec-96 Dec-00 Dec-04
index
70
80
90
100
110
120
130
140% GDP
US current account deficit (lhs, inverted)
USD real trade weighted index (rhs)
USD peak ...
… to current account trough ... … was a five year period
US current account deficit & the USD - still no relief for US current account deficit
The purchasing power parity for the AUD is a likely medium term target-overshoot likely
0.45
0.55
0.65
0.75
0.85
0.95
Dec-83 Dec-87 Dec-91 Dec-95 Dec-99 Dec-03
USD
0.45
0.55
0.65
0.75
0.85
0.95USD
PPP AUD/USD
The AUD & commodity prices-old relationships are being reestablished
60
80
100
120
Dec-84 Dec-87 Dec-90 Dec-93 Dec-96 Dec-99 Dec-02
USD
0.45
0.55
0.65
0.75
0.85
0.95
index
AUD/USD (rhs)
WCFI+BI (lhs)
Current forecasts - NOVEMBER 2003
latest Dec-03 Jun-04 Dec-04Cash 5.00 5.25 5.50 5.503yr 5.75 6.00 6.50 6.0010yr 5.90 6.10 6.75 6.40Fed Funds 1.00 1.00 1.00 1.5010yr 4.35 4.50 4.80 5.40AUD/USD 0.71 0.72 0.77 0.74EUR/USD 1.18 1.17 1.21 1.25
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