Weekly Reports | Dec 06 2019
Weekly Broker Wrap: cash rate; housing; consumer; port volumes; health insurance; and financial advisers.
-NAB analysts include an additional cut to cash rate forecasts
-House price growth to moderate, credit growth subdued
-UBS finds consumer outlook positive for home improvements and fast food
-Australian port volumes weaken
-Financial adviser numbers continue to dwindle for major operators
By Eva Brocklehurst
Cash Rate Outlook
National Australia Bank analysts include an additional -25 basis points reduction to the Reserve Bank of Australia's cash rate in forecasts. Cuts are expected in February and June 2020, taking the cash rate to 0.25%. From there, the analysts expect an increased risk of unconventional monetary policy in the second half of 2020, should the labour market weaken more significantly.
The NAB forecasts are for below-trend growth, and a deterioration in the unemployment rate with inflation firmly below the RBA's target band of 2-3% over the cycle. This implies the need for policymakers to do more. The analysts remain more optimistic on public spending vs the RBA's forecast but expect the household sector and business investment to be notably weaker.
Australian house prices grew in November at the fastest pace since 2003. Morgan Stanley notes national house prices are now up 5.7% from the June 2019 trough. Detached house prices grew faster than apartments and, by city, Sydney led the way.
The broker expects price growth to moderate into 2020, based on a view that credit constraints will be a deterrent. Credit growth remains very subdued and investor lending growth is negative. Investor loan approvals have typically been important for the housing cycle and house price growth.
In contrast, building approvals have fallen to a seven-year low. Building approvals are down -23.6% from a year ago, and in trend terms are annualising at 158,000, the weakest level in over seven years. While the broker expects approvals will trough early in 2020, the lags in the construction cycle mean activity will still decline through 2020 and be a drag on both jobs and activity in the economy.
UBS found results, overall, in its consumer outlook survey were positive, particularly in home improvements and fast food. Travel intentions were slightly softer, although key brands such as Flight Centre ((FLT)) and Webjet ((W EB)) are winning share. Superior sites and improved pricing have reinforced the broker's view on the volume opportunity in fuel & convenience at Viva Energy ((VEA)), while for Wesfarmers ((WES)) the home improvement indicators are resilient.
Online shopping intentions in the survey were also strong and rising, particularly for local brands. Meanwhile, the results were slightly negative for Domino's Pizza ((DMP)) as aggregators are growing rapidly and there is a risk the company may not be able to hold share.
Citi notes Australian retail expenditure has been sluggish since a small uptick in August after the federal government's tax cuts. It appears households are paying down credit cards faster than usual, which may be positive for spending in November and December. The recent increase in house prices also points to improving sales growth in the first half of 2020.
Citi has reviewed recent APRA data which shows household deposits grew by 7% in the four months to October, a similar pace to the 3-year average of 6%. It appears that, while bank accounts have not ballooned, credit card balances have been reduced by -6% over the period.
The broker also suggests the short-term rise in the savings rate in the September quarter may unwind if house prices continue to rise. Meanwhile, there appear to be some pockets of strength Citi has noted in retail sales anecdotes. In particular this includes consumer electronics, groceries and sporting goods.