Data smacks of a public whack. Judging by the lending data for March from the Reserve Bank and Australian Prudential Regulation Authority yesterday, it’s time for a big, public whacking for one or two of the recalcitrants, instead of telling us that we may never know how regulators control bank home-lending activities.
While RBA data showed home loans rose at a rate of 7.3% in the year to March, lending to investors surged by an annual 10.4% (the strongest annual rate since February 2008, as the GFC was gathering).
That was faster than the 10.1% annual rate in the year to February, and much faster than the 10% limit APRA nominated in its December letter to banks and other home lenders as the key threshold for home loan growth. In fact, APRA said at that time “strong growth in lending to property investors — portfolio growth materially above a threshold of 10 per cent will be an important risk indicator”.
So, time for a public canning of one of the offenders, or three?
Adding to the clear evidence that investors are increasing their involvement in the housing market, investment credit increased to 34.5% in the year to March, the highest share on record.
The APRA data showed the National Australia Bank grew its investor lending book the fastest of the big four — 13.8 % in the month, according to Macquarie. Westpac grew its book by 10.3%, the ANZ by 10.2% and Commonwealth Bank by 9.4%.
APRA head Wayne Byers said last month that we may never know what action the regulators take against banks about their lending activities. A bit of transparency please, Mr Regulator. After all you are regulating the lenders, not for your benefit, but for the benefit of the entire financial system, economy, millions of borrowers and lenders. Your organisation and the RBA’s Glenn Stevens have already chided the bank over questions of trust and culture, surely overly aggressive lending activity deserves a similar dressing down because it is clear the banks haven’t got your message. — Glenn Dyer
High-tech wreck. It’s been a rotten couple of weeks for tech high fliers on Wall Street. Its a problem no tech head can write an algorithm to handle — weak financial results, tech problems with a high-profile new product, and just a feeling of unease among investors that the tech sector has reached the end of its current rebound to record highs (after 15 years of trying).
Facebook, Twitter and Yelp have produced weak or unimpressive results. LinkedIn was the latest, releasing very weak figures overnight, with shares ending down 53%. US$6 billion of value vanished in a matter of minutes.
Earlier in the week, Twitter’s weak quarterly figures were leaked early to the market and the shares plunged 26% at one stage, to end down 18%. Yelp shares lost more than 12% overnight on weak results, Facebook’s figures last week showed a big rise in spending, and while revenue growth made investors happy, there’s now concerns the giant needs to haul back on some of its ambitious ideas.
And Apple’s new watch hit a problem with tattoos — a key component is confused by tattoos on the wearer’s wrists (and there are claims emerging that the same gizmo is also confused by people with dark skin).
That’s a big worry because the stories are spreading on social media. Apple shares lost 3.5% overnight (billions of dollars) to around US$125, where it is now more than US$9 a share under its all-time peak, hit on Monday, of US$134.54. That’s a loss of close to US$100 million in value — more than the revenue the company raked in over the three months to March. — Glenn Dyer
Muted cheers and rate fears. Muted cheers overnight as the first report of eurozone inflation for April showed that deflation has vanished — consumer prices were flat in the month after falling from December to March. So will this mean the spread of negative rates across the eurozone and the rest of Europe?
At first glance, yes, as bond yields rise across the board. For the markets and policy-makers, the question is whether deflation has been vanquished, is it temporary, or will prices now start rising. The betting is on the latter as the eurozone economies grow and oil prices rebound (they were the major factor behind the fall in inflation late last year and in the first quarter of 2015).
The steady fall in cost pressures meant the European Central Bank introduced its huge quantitative easing — which bond and share markets now think could end sooner than later, hence the sell-off in fixed interest and equities this week across Europe and in the US.
US bond yields are back above 2% for the 10-year security and the German 10-year bond’s yield has leap from a low of 0.005% to 0.37% this morning. This, in turn, has triggered a surge in the value of the euro against the greenback.
That is partly why the Aussie dollar rose strongly this week (ending up more than 4% in April against the greenback), even though it has now fallen back to 79 US cents.
The dollar’s surge this week prompted a spate of stories overnight, and this morning tipped a certain rate cut from the RBA next Tuesday. But it might pay to watch bond and currency markets offshore as there seems to be a major realignment underway as deflation’s grip over the eurozone eases.
Next week’s monthly meeting of the ECB suddenly assumes more interest than normal, with analysts looking for any word on the end of the current easing. That won’t come, but watch the June confab, which is a monetary policy meeting. Several more months of rising inflation will almost certainly see something happen. — Glenn Dyer
Mixed or fixed? A day after the Fed left a mixed message for markets about the first rise in US interest rates since 2006, there’s more conflicting data for economists to chew over.
First up, the weekly unemployment data showed a bigger than expected improvement. The number of Americans filing new claims for unemployment benefits last week dropped to the lowest level since 2000, suggesting March’s weak jobs growth report was a one-off (and supporting the Fed’s belief that the headwinds hitting the economy are transitory).
The US government said initial claims for state unemployment benefits declined 34,000 to a seasonally adjusted 262,000 for the week ended April 25, the lowest reading since April 2000.
Other data showed US labour costs rising more strongly than expected in the year to March. These rose 2.6%, the biggest rise since the final quarter of 2008 (when the GFC was intensifying). This is still under the 3% annual rate considered to be a warning light for the Fed.
The 2.6% rate is up from 2.2% throughout 2014. And a third set of data showed US consumer spending rose in March as households lifted their purchases of durable goods. The US Commerce Department said consumer spending increased 0.4% in March, after rising 0.2% in February. When adjusted for inflation, consumer spending rose 0.3% in March after being flat in the prior month.
The data also showed the US savings rate dipped, inflation remained benign, up 1.3% in the year to March according to the Fed’s preferred measure. That’s still well under the 2% target the Fed likes to use, meaning there are price pressures in the economy. — Glenn Dyer