Australia: AAA rating remains under question, building approvals dropped and private sector credit rose - TDS

Research Team at TDS, notes that S&P reiterated that Australia’s AAA rating remains under question.

Key Quotes

“The Senior Director of Sovereign Ratings at S&P, Kim Eng Tan, said higher commodity prices are unlikely to  be of significant help in improving Australia’s long-term fiscal position. Political uncertainty following the 2016 Outlook is said to be contributing to the negative Outlook.”

“Australian building approvals dropped sharply in Oct, at the headline level slumping 12.6%, way more than the 2% the market forecasted, following the outsized 9% drop in Sep. The Oct drop was the largest percentage decline in 11 months, seeing building approvals drop nearly 25% on the year. The weakness was virtually all down to a sharp drop in apartment approvals, down nearly 25% on the month, compared to a near 3.5% decline in private houses. The weakness was broad-based with all states bar the ACT registering drops in approvals. While total approvals remain at elevated levels, private housing approvals was the smallest in size since Feb last yr and for dwellings ex-houses, approvals were the lowest since Aug 2015. With weak Q3 Construction Work done data released last week and new home sales hitting a 2yr low based on HIA data, it may support the argument that we may have seen the peak in approvals.”

“The RBA’s measure of Private sector credit rose 0.5%/m, to be up 5.3%/yr, a touch above the market’s forecasts (0.4%/m & 5.2%/yr). The 5.3% annual growth in credit though was the slowest since Aug 2014. Lending towards housing rose 0.6%/m. The breakdown showed lending to owner occupiers remained steady at 0.5%/m, but slowed in annual terms, from 7.3% to 7.1%. In contrast lending to housing investors picked up, +0.7%/m (which was the largest monthly increase since Aug last yr), taking the annual growth to 5.3% from 4.8%. We suspect the Aug rate cut helped drive the pick-up in investor loan demand. Lending to businesses picked up on the month from 0.2% to 0.5%/m, but in annual terms, lending to businesses has slowed from 4.8% in Sep to 4.4% in Oct. Perhaps we see this pick-up further with the bounce in the terms of trade.”