Month: January 2015

Australian Retail Ecommerce Sales to Top $10 Billion in 2015

According to eMarketer’s latest estimates of retail sales, Retail ecommerce sales in Australia will rise 14.4% this year to pass $10 billion. In 2014, ecommerce sales in the country increased 17.3% to account for over 4% of total retail sales, and that share will expand to 4.5% in 2015. Low double-digit gains will continue through 2017, and by the end of the forecast period, retail ecommerce sales will total $14.52 billion and represent 5.6% of retail sales in the country.

Australia falls in the middle of the pack in both absolute terms and percentage of total retail ecommerce sales when compared with the other Asia-Pacific countries, behind China, Japan and South Korea and ahead of India and Indonesia.

Interestingly, digital buyer penetration among internet users in Australia is the second highest in Asia-Pacific. eMarketer estimates that 79.4% of internet users in the country will purchase via any digital channel this year, behind only Japan (82.0% penetration). Due to its size, though, Australia has the smallest digital buyer population in Asia-Pacific, at 12.1 million.

Australia’s ecommerce landscape is crowded with international competitors—especially eBay-owned properties—according to October 2014 data from Experian Hitwise Australia. eBay Australia catalogued the highest number of visits, 23.1 million, during the week examined, accounting for 12.9% of retail site visits during that timeframe. The local edition of eBay-owned classifieds site Gumtree was second with 13.3 million visits and a 7.4% share, followed by eBay with 13.2 million for a 7.4% share, and Amazon with 11.6 million for a 6.5% share. [Note: The Australian version of Amazon’s site, Amazon.com.au, sells only ebooks.]

The remaining top 10 ecommerce sites, with visitor shares of around 1% or less, included user-supported deals-posting site OzBargain, consumer electronics retailer JB Hi-Fi Australia and hardware chain Bunnings Warehouse, Apple’s site, Alibaba Group-owned discounts site AliExpress and department store chain Target Australia. The list reflects a landscape dominated by consumer-to-consumer resale sites, alongside options for business-to-consumer transactions.

APRA To Regulate Private Health Insurers

The Treasury has today released an Exposure Draft that will establish APRA as the prudential regulator of the private health insurance industry. This is part of the Smaller Government – additional reductions in the number of Australian Government bodies initiative announced as part of the 2014-15 Budget. The Private Health Insurance Administration Council (PHIAC) will cease as a separate body and its prudential supervisory functions will be transferred to the Australian Prudential Regulation Authority (APRA). The transfer of PHIAC’s prudential supervisory functions will be given effect by the Exposure Draft Private Health Insurance (Prudential Supervision) Bill 2015 (Exposure Draft Bill) which will represent a new Act for the regulation of private health insurers, administered by APRA. The main changes are:

  • the registration of private health insurers and the prevention of entities not registered from carrying on a health related business
  • requirement for private health insurers to have health benefits funds and obligations relating to the operation of such funds
  • restructure, merger, acquisition and termination of health benefits funds
  • appointment of an external manager of a health benefit fund and the powers and duties of external managers and terminating managers
  • duties and liabilities of directors
  • establishment of prudential standards and directions by APRA and the requirements for health benefits funds to comply with such standards and directions
  • obligations of private health insurers such as the appointment of actuaries and reporting and notification requirements
  • APRA’s ability to supervise compliance by private health insurers with their obligations and APRA’s enforcement powers
  • enforceable undertakings
  • APRA’s ability to seek remedies for a contravention for an enforceable obligation
  • review of APRA’s decisions by the Administrative Appeals Tribunal (AAT)
  • ability of APRA to give approvals and make determinations and rules

Treasury is seeking feedback by 30th January.

Investors Still Leading The Way

The ABS published their housing finance data today for November 2014. Comparing October to November, the trend estimate for the total value of dwelling finance commitments excluding alterations and additions rose 0.6%. Investment housing commitments rose 0.9% and owner occupied housing commitments rose 0.5%.

However, in seasonally adjusted terms, the total value of dwelling finance commitments excluding alterations and additions fell 1.0%.

In original terms, the number of first home buyer commitments as a percentage of total owner occupied housing finance commitments rose to 11.6% in November 2014 from 11.4% in October 2014.

In trend terms, the number of commitments for owner occupied housing finance was flat in November 2014. In trend terms, the number of commitments for the purchase of established dwellings was flat and the number of commitments for the construction of dwellings rose 0.2%, while the number of commitments for the purchase of new dwellings fell 0.5%.

Construction Falls In December

Data released today shows that the construction sector fell again in December.

The national construction industry continued to exhibit substantial weakness in December 2012. The overall rate of contraction eased for a third consecutive month in response to slower declines in activity and new orders. The seasonally adjusted Australian Industry Group/ Housing Industry Association Australian Performance of Construction Index (Australian PCI®) increased by 1.8 points in December to 38.8. The index has now remained below the critical 50 points level (that separates expansion from contraction) for 31 consecutive months.

By sector, commercial construction activity contracted at its slowest pace in just over two years, while the rate of decline in engineering construction again eased during the month. In contrast, house building activity declined at its steepest rate in three months amid weaker new orders. Apartment building activity also moved further into negative territory.

Businesses reporting declines in activity mainly attributed this to tight credit conditions, strong competition for existing work and uncertainty about the economic outlook. A number of reports from house builders indicated that the weakness in demand was marked by a reduction in home buyer enquiries and a lack of commitment from potential purchasers.

Apartment building turned down sharply to the lowest level in the past 16 months.

The Australian Industry Group Performance of Construction Index (Australian PCI®) in conjunction with the Housing Industry Association, is a national composite index based on the diffusion indexes for activity, orders/new business, deliveries and employment with varying weights.

Q4 Capital City Rentals Static

CoreLogic RP Data just released their rental data to December 2014. Over the 2014 calendar year, advertised rental rates on a national basis increased by 2.6 per cent for both houses and units. At a capital city level, the rental performance across the different housing stocks was more varied. House rents rose by 1.2 per cent over the year, while unit rents outperformed the detached housing market, up 2.5 per cent over the 12 months to December 2014.

RPDataRentalsDec2014Quarterly movements. Capital city advertised rents remained unchanged over the final quarter of 2014, with house rents steady at $430 per week and unit rents recorded at $410 per week. Across Australia, house rents increased by 1.3 per cent to $400 per week, while unit rents were unchanged over the three months to December at $390 per week.

For houses, the performance across each individual capital city market was varied. Hobart houses saw rents rise by the most, up 5.4 per cent over the three month period, while Brisbane (2.5 per cent), Adelaide (1.4 per cent), Canberra (1.1 per cent) and Sydney (1.0 per cent) saw rents rise by a more moderate amount. Perth (-2.2 per cent) and Darwin (-0.8 per cent) were the weakest performing rental markets for houses over the three month period. Melbourne was the only capital city market to record no change, with weekly rents for houses stable at $385 per week. The performance across the unit market at a capital city level was somewhat weaker. Hobart (1.8 per cent) and Brisbane (1.3 per cent) were the only capital cities in which rents rose over the three months to December, while all other cities saw rents fall over the last quarter of 2014 with the exception of Adelaide and Canberra where no change was recorded.

Annual movements. Nationally, advertised rents are 2.6 per cent higher than they were in December 2013 for both houses and units, while across the combined capital cities house rents have risen by 1.2 per cent, compared to a stronger level of growth for unit rents which rose by 2.5 per cent. Over the year to December 2014, for houses, the strongest performing capital city market in terms of rental increases was Hobart, where the median advertised weekly rental rate was 3.8 per cent higher. Sydney, Adelaide (both 2.9 per cent), Brisbane (2.5 per cent) and Melbourne (1.3 per cent) all had rents higher in December 2014 when compared to December 2013. Perth (-6.3 per cent) and Canberra (-5.0 per cent) were by far the weakest performing capital city markets for growth in advertised house rents.

Similar to houses, Canberra (-7.3 per cent) and Perth (-4.4 per cent) were the weakest performers amongst the capital city unit rental markets and were the only two cities to see rents fall over 2014. Unit rents for both Adelaide and Darwin remained unchanged over the year, while Hobart (3.7 per cent) and Sydney (3.1 per cent) were the strongest performers.

Retail Trade Up In November

The latest ABS Retail Trade figures show that Australian retail turnover rose 0.1 per cent in November, seasonally adjusted, following a rise of 0.4 per cent in October 2014.

In seasonally adjusted terms food retailing rose 0.6 per cent or $56.3 million in turnover. Other industries which experienced rises were cafes, restaurants and takeaway food services (0.8 per cent) and household goods retailing (0.6 per cent). Department stores remained relatively unchanged (0.0 per cent). This was partially offset by falls in other retailing (-2.1 per cent) and clothing, footwear and personal accessory retailing (-0.7 per cent).

In seasonally adjusted terms the states which displayed rises were Victoria (0.4 per cent), South Australia (0.4 per cent), the Australian Capital Territory (1.3 per cent), Tasmania (1.1 per cent), the Northern Territory (1.6 per cent) and Queensland (0.1 per cent). This was partially offset by falls in New South Wales (-0.2 per cent) and Western Australia (-0.1 per cent).

The trend estimate for Australian retail turnover rose 0.4 per cent in November 2014. Through the year, the trend estimate rose 4.5 per cent in November 2014 compared to November 2013.

Total online retail trade, in original terms, rose 5.2 percent in November following a rise of 9.8 per cent in October 2014 and a rise of 8.7 per cent in September 2014.

Will RBA Change Rates in 2015?

Until quite recently, there was something of a consensus that in 2015 the RBA was likely to lift rates, despite  their monthly mantra about a period of interest rate stability.  Some economists have argued that falling consumer confidence, slowing wage growth, and international uncertainty were all factors which would lead to lower rates, whilst on the other hand, the falling price of fuel at the pumps, and continued investment property demand might lead to higher rates.

So, interesting then that today the Commonwealth Bank of Australia  (CBA) released a note in which they have pushed out any rate rise expectations into the first quarter of 2016. In the interim period, they say, the cash rate will most likely stay at current levels – at 2.5% – the rate it has been for well over a year now. They suggest that a cut to the current low rate is unlikely, because the falling dollar and oil prices will stop the RBA dropping rates further. Previously, the CBA had been suggesting a rise in 2015 was likely.

The CBA said, a rate cut wouldn’t necessarily help produce the confidence and the stability the RBA is seeking:

“It appears that households and business now equate rate cuts with ‘bad’ economic news.”

The bank thinks a cash rate of 3.5 per cent by the end of 2016 is quite likely.

Dwelling Approvals Rise in November

ABS Building Approvals show that the number of dwellings approved rose 0.2 per cent in November 2014, in trend terms, and has risen for six months.

Dwelling approvals increased in November in Tasmania (3.8 per cent), the Australian Capital Territory (3.2 per cent), the Northern Territory (2.9 per cent), Victoria (2.8 per cent) and Western Australia (0.9 per cent) but decreased in Queensland (2.4 per cent), New South Wales (1.4 per cent) and South Australia (1.1 per cent) in trend terms.

In trend terms, approvals for private sector houses fell 0.3 per cent in November. Private sector house approvals fell in South Australia (0.7 per cent), Western Australia (0.7 per cent) and New South Wales (0.5 per cent) but rose in Victoria (0.2 per cent) and Queensland (0.2 per cent).

The value of total building approved fell 0.7 per cent in November, in trend terms, and has fallen for 12 months. The value of residential building fell 0.5 per cent while non-residential building fell 1.0 per cent in trend terms.

Bank of England Releases GFC Court Minutes

The Bank of England today published, in a special release, the minutes of Court and related meetings from the crisis period of 2007-09, in appropriately redacted form.  This follows the Bank’s 11 December 2014 announcement of a series of proposals to enhance the transparency and accountability of the Bank. As part of this announcement, the Governor committed to publishing the 2007-2009 Court minutes, as requested by the Treasury Committee.

In the period covered by these minutes the Bank was operating within the statutory framework established in 1998. Court was much larger than the present Court, a number of members had standing conflicts of interest, and there was no provision for a non-executive chairman (to compensate for that, the Governor established the practice of having all Court business discussed first in the non-executive directors’ committee). At the time, the Bank had no powers to take actions to manage macro-prudential risks.  It was not responsible for banking supervision and there was no bank resolution authority.  The roles, in a crisis, of the Bank, the Treasury and the FSA were ill-defined. These deficiencies were rapidly identified during the period covered by the minutes, and were addressed both by the 2009 Banking Act and subsequently by the 2012 Financial Services Act, which radically changed both the role of the Bank and the structure of its governance.

Governor, Mark Carney said:

“The financial crisis was a turning point in the Bank’s history. The minutes provide further insight into the Bank’s actions during this exceptional period – the policies implemented to mitigate the crisis, the lessons that were learned, and how the Bank changed as a result.

The Bank is committed to increased openness and transparency and these minutes, in combination with the other recent reviews, provide a complete record of the Bank’s activities during the crisis.”

UK PRA Published its New “PRA Regulatory Digest”

Continuing their efforts to strengthen the effectiveness of their effective communications, the UK regulatory authorities have created a monthly digest of relevant releases and news. They say that

“this digest is for people working in the UK financial services industry and highlights key regulatory news and publications delivered for the month. Readers are encouraged to continue to visit the Bank of England website throughout the month, subscribe to alerts and visit the calendar for upcoming news and publications.”

We think the Australian Regulatory authorities should learn from this, as at the movement we have separate and disconnected release streams from RBA, APRA and ASIC. The UK effort shows the power of bringing material together into a more digestible form.

We think this should be coordinated by the Council of Financial Regulators (CFR). This body is the conductor of the regulatory orchestra, and has only had an independent website since 2013.  It is the coordinating body for Australia’s main financial regulatory agencies. We discussed the role of CFR recently.