Thursday, June 9, 2016

Banks exposed to "credit negative" risk from housing, warns Moody's

A resurgence in Australian real estate prices and rising household debt are becoming a greater risks for the nation's banks, according to the Moody's credit ratings agency.

Moody's warns the two factors raise bank sensitivity to potential "downside risk" in the reheating housing market with potential implications for the wider financial system.

Listen to my interview with Moody's senior vice president Ilya Serov 

Moody's says increasing leverage through housing could be "credit negative" for banks, despite currently strong employment conditions and an economy supported by low interest rates.

A contributing factor to the housing concerns is the Reserve Bank's decision to cut the cash rate to 1.75 percent in May, according to Moody's senior vice president Ilya Serov.

"The housing market in Australia appears to have accelerated over the past couple of months partly on the back of the cut in interest rates that we've seen in May," Mr Serov told The World Today.

"We are already in an economy which is characterised by fairly high levels of debt particularly in the household sector and the debt to income ratio which had been stable is now creeping up again."

Mr Serov says although interest are at record lows and likely to get lower, investors are exposed if the RBA moves or banks hike rates independently.

"The economy from a household sector perspective is more sensitive to increases in interest rates should they occur," Mr Sherov said.

While an imminent shock to the housing sector is unlikely, Mr Sherov said there could be broader macroeconomic effects that would rattle the financial system if the worst case scenario unfolds.

"It would most likely effect consumption, therefore households and how much money people are prepared to spend on durables such as white goods and car which are typically linked to how well the value of their house is going," Mr Serov said.

"I think the housing market in Australia is interlinked with economy very much so it would be difficult to separate  the two in that kind of adverse unlikely event."

The Moody's warning comes after data released last week by CoreLogic showed signs of house price acceleration in early 2016 despite a moderation late last year.

The Reserve Bank has also warned that banks are potentially exposed although intervention from the prudential regulator APRA (Australian Prudential Regulation Authority) appears to have tamed investor appetite.

Data released yesterday by the ABS showed investor housing finance fell by five percent in April.

However, Moody's Ilya Serov says there are signs that the APRA pressure has some way to go.

"It's particularly challenging in the context of declining interest rates. To that extent always when interest rates drop some housing activity reaccelarates and I think that's what we're seeing here."

Tuesday, June 7, 2016

Yellen dampens June rate rise talk as RBA board meets

US interest rates are set to remain on hold this month after Federal Reserve chair Janet Yellen delivered a highly qualified speech that signalled a June move was off the table.

While Dr Yellen said the US economy was making progress, she failed to repeat earlier comments that a rate hike would be appropriate in "coming months".

"I continue to think that the federal funds rate will probably need to rise gradually over time to ensure price stability and maximum sustainable employment in the longer run," Dr Yellen said.

Fed watchers have taken the omission of "coming months" as a signal that Dr Yellen is no hurry to raise US rates after disappointing payrolls data showed US jobs grew at the slowest pace in six years in May.

Speaking in Philadelphia, Dr Yellen described the jobs outcome as "concerning" but said it was too early to draw meaningful conclusions about implications for the wider US economy.

"One should never attach too much significance to any single monthly report," Dr Yellen told reporters.

"If the May labor report was an aberration or reflects a temporary slowdown resulting from the weakness in economic activity at the start of the year, then job growth should pick up and support further gains in income."

Dr Yellen's softer comments are seen as significant ahead of the Fed's highly anticipated June meeting next week.

US rates have been kept steady at between 0.25 percent and 0.5 percent since last December when the Federal Reserve moved higher from near zero levels introduced at the height of the global financial crisis.

Since December, Dr Yellen has repeated that future rate rises would be "gradual" and depending on jobs growth and inflation rising closer to the Fed's target of two percent.

Wall Street investors applauded the apparent rates reprieve having already factored in the likelihood of a June rate rise after earlier hawkish signals from Fed members before the May jobs disappointment.

The Dow Jones Industrial Average closed 0.64 percent or 113 points higher on Dr Yellen's dovish comments while the US dollar fell to its lowest level in four weeks against major currencies.

Dr Yellen said she is monitoring "four areas of uncertainty" including the economic growth rate in China and the "Brexit" referendum on June 23 over Britain's membership of the European Union.

The focus on US rates comes as Australia's Reserve Bank holds it's June meeting after delivered a May rate cut on Federal Budget day.

While money markets are factoring in five percent chance of another cut, the focus will be on the statement after last week's better than expected economic growth figures for the March quarter.

However, most economists expect the RBA board will wait on the June 28 consumer inflation reading before deciding on whether to deliver a follow up rate cut in August.

Monday, June 6, 2016

Bondi hipster profile for media worker bad for diversity, warns PWC report

A report out today warns a lack of racial and gender diversity in Australia's media is dragging down the future growth of the industry.

Instead of reflecting real world Australia, the research shows the average media worker is a while male "hipster" who lives in Sydney's inner west or eastern suburbs.

Listen to my interview with PWC's Megan Brownlow broadcast on The World Today

In Melbourne - Australia's second biggest media market - the typical media worker lives in the inner city suburbs of St Kilda or Richmond.

The disturbing snapshot is revealed in PWC's annual media and entertainment outlook which urges the media sector to tackle internal culture and recruitment problems to create better diversity in ethnicity, gender and age.

The outlook examines workplace diversity in the media for the first time and says the industry is overrepresented by English monolingual staff with 75 percent of employees white, male and aged over 35.

Megan Brownlow, who edited the outlook for PWC, told The World Today the media sector needs to face up to some disturbing truths about media workers confirmed in the geospatial modelling.

"It turns out to be the Bondi hipster - a 27 year old white male who lives in Bondi," Mr Brownlow said.

Megan Brownlow, editor of PWC's media outlook 

"The top ten suburbs for media and entertainment people are all in Sydney, either in the eastern suburbs are the inner west."

Ms Browlow says the report shows that Australia has moved on dramatically from 1910 when the average Australian was a 24 year old white male farmer who was Anglican and of British background.

"I think it's fairly apparent that we are not a very diverse industry," Ms Brownlow said.

"If we fast forward to today, the average Australian has changed from being a male to a female.

"She's a 37 year old and her belief is not Anglican but Catholic and she works in retail."

But when it comes to decision makers - or senior managers - the average profile is a 45 year old white male who is less likely to be bilingual.

The PWC report reflects recently comments from ABC managing director Michelle Guthrie that the national broadcaster needs to better mirror Australian society.

But Ms Brownlow says all broadcasters including the ABC need to constantly review their strategies to improve diversity.

Ms Brownlow says the lack of diversity stems from "unconscious bias" or "similarity of attraction" where employers are drawn to people like themselves.

However, Ms Brownlow has highlighted Waleed Aly who recently won the Gold Logie as a role model of changing times in the media along with Rebecca Maddern who is now presenter of the Victorian version of The Footy Show on the Nine network.