In Brief: Inflation, Property Sentiment, Bank Buybacks, Gaming Regulation

Weekly Reports | Sep 30 2022

Weekly broker wrap: impacts of further fiscal support, low property sentiment, declining bank equity, gaming regulatory concerns.

-Fiscal support could slow fall in inflation
-Property sentiment remains low amid rate rising
-Analysts predict buyback programs from the major banks in coming years given rapid equity decline
-Regulatory concerns not enough to dampen anticipated customer spend growth

By Danielle Austin

Further fiscal support an impediment to inflation recovery

Oxford Economics predicts fiscal support in advanced economies could slow the fall of inflation. Many of the fiscal support programs implemented throughout the pandemic have ended, but with wage increases not keeping pace with inflation, Oxford Economics sees signs of some economies looking to re-introduce fiscal support measures.

Inflation has taken surprisingly little impact on retail sales despite noises of poor consumer confidence, with consumers buffered in the early days of the inflationary cycle by the higher savings accumulated throughout the pandemic, as a result of fiscal intervention.  The economists expect the real-wage squeeze, slowing retail sales and falling commodity and producer prices to be all positive signs of slowing inflation, but warns further fiscal support is a real threat.

The UK energy price cap policy, and similar programs being implemented throughout Europe, is an early sign of mis-calibrated fiscal support, according to Oxford Economics.

[Note: Report published ahead of announced fiscal measures from new UK government.]

Interest rates high, property sentiment low

Higher interest rates, and the impending prospect of further hikes, has seen property sentiment remain low. According to ANZ Bank’s September quarter property council survey, residential property sentiment largely remained flat at low levels, while commercial property sentiment did experience a small rise.

While the Reserve Bank issued its fifth consecutive cash rate hike in early September, lifting the rate to a seven-year high of 2.35%, 90% of ANZ Bank’s survey respondents are anticipating interest rates to climb higher. Many of these respondents also expect further cost increases and increased difficulty in accessing financing to be a result of the rate rising cycle.

The survey results highlighted that while firms remain pessimistic about the broader economic outlook, they are more upbeat about their own prospects. In line with this outlook, many respondents remain positive about their own staffing levels and forward work schedules.

Likely buybacks across domestic banking industry in next year

Citi sees the possibility for further share buybacks within the domestic banking industry in 2024 given the decline in excess capital held by banks. Recent months have been expensive for the banks from a capital perspective, with the industry experiencing a -120 basis point decline in CET1 (common equity tier) ratios over the last year, equivalent to $21.5bn of CET1.

The Australian Prudential Regulation Authority (APRA) is set to implement revised capital standards from the beginning of 2023, which will expect the majors to operate with CET1 ratios above 11%. Citi assumes CET1 ratios to settle around 11.5% following the implementation of these standards, rising to 11.9% by the second half of FY24.

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