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July 2020
Australia – A long and uncertain recovery
ECONOMICS I RESEARCH
Royal Bank of Canada, RBC Capital Markets
Su-Lin Ong (+612) 9033 3088 [email protected]
This report is priced as of market close 20 July 2020
For Required Non-U.S. Analyst and Conflicts Disclosures, please see page 7
A Presentation to the ASF
RBC Capital Markets3
Elevated household debt a likely headwind to consumption in the recovery
Will household behaviour change permanently post COVID-19?
Source: IMF, Haver, RBC Capital Markets
50
70
90
110
130
150
170
190
210
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
Household debt (% of household income, 4 qtr moving average)
Australia New Zealand Canada Euro area UK US
RBC Capital Markets4
House prices proving resilient…..for now
A rise in arrears appears inevitable
Source: ABS, CoreLogic, Haver, RBC Capital Markets
-20%
0%
20%
40%
60%
80%
100%
120%
140%
0
20
40
60
80
100
120
140
160
86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
Peak-trough (%, rhs)
Trough-peak (%, rhs)
House prices (lhs, index)
RBC
forecastsNationwide House Prices
RBC Capital Markets5
Confidence is key and will take another set back
Will the hit from renewed lockdown prove more enduring this time?
Source: NAB, Westpac, Haver, RBC Capital Markets
65
70
75
80
85
90
95
100
105
110
115
-90
-70
-50
-30
-10
10
30
Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20
Business & consumer confidence through COVID restrictions
Business confidence (index, lhs) Consumer confidence (index, rhs)
Mar 21-29: AU SD measuresstep up furtherin with shutdown of non-essentialservices from Mar 29.
30 Mar: Third round of stimulus incl JobKeeperpayment announced(total ~$195bn) 1 May: JobKeeper
payments commence
2 Apr: Free childcarefor working parentsannounced
Mid-May: progressiveeasing of SD measuresand trading restrictionscommences
7-9 Jul: Greater Melbourne returns to stage 3 lockdown,NSW shuts border with VIC,QLD re-opens border to mostvisitors ex-VIC and Sydney
25 Jun: $250m JobMaker package for arts
15 Jul: $2.5bn skills packageincl extending apprentice subsidies and "JobTrainer"
11 Mar: WHO labelsCOVID-19 a pandemic
21 Feb: First case diagnosed in Italy
19 Mar: RBA cuts cash rate to 0.25% and commences unconventional policy measures
25 Jan: Australia advises "do not travel" to China
15-20 Mar: AU bans large gatherings, overseas arrivalsrequired to self-isolate for 14days, all international travelbaned, 4sqm rule imposed
22 Mar: Second-round AU stimulus/assistance package announced ($66bn)
12 Mar: First round of AUstimulus announced($17.6bn)
1 Feb: Australia bans non residents from China
17-19 Jul: Re-tightening of some restrictions inNSW, VIC back to home-schooling and masks mandatory
4 Jun: $1.6bn Homebuilder package
RBC Capital Markets6
The unemployment rate only tells part of the labour market story
Other measures are more insightful and suggest greater weakness
-4
1
6
11
16
21
78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
Underutilisation metrics (seasonally adjusted)
Unemployment (%) Underemployment (%) Underutilisation (%)
*dotted lines are long-run averages
Source: ABS, Haver, RBC Capital Markets
RBC Capital Markets7
Scope for more fiscal support, debt metrics enviable by international standards
Fiscal policy needs to do the heavy lifting
Source: IMF, Haver, RBA Capital Markets
0
25
50
75
100
125
150
175
200
225
JP IT FR US UK CA GE AU NZ
Gross general government debt % GDP (4qtr average)
RBC Capital Markets8
Disclaimer
Additional information is available on request.
To U.S. Residents: This publication has been approved by RBC Capital Markets, LLC (member FINRA, NYSE), which is a U.S. registered broker-dealer and which accepts responsibility for this report and its dissemination in the United States. Any U.S. recipient of this report that is not a registered broker-dealer or a bank acting in a broker or dealer capacity and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report, should contact and place orders with RBC Capital Markets, LLC.
To Canadian Residents: This publication has been approved by RBC Dominion Securities Inc. (member of IIROC). Any Canadian recipient of this report that is not a Designated Institution in Ontario, an Accredited Investor in British Columbia or Alberta or a Sophisticated Purchaser in Quebec (or similar permitted purchaser in any other province) and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report should contact and place orders with RBC Dominion Securities Inc., which, without in any way limiting the foregoing, accepts responsibility for this report and its dissemination in Canada.
To U.K. Residents: This publication has been approved by RBC Europe Limited (‘RBCEL’) which is authorized and regulated by Financial Services Authority ('FSA'), in connection with its distribution in the United Kingdom. This material is not for general distribution in the United Kingdom to retail clients, as defined under the rules of the FSA. However, targeted distribution may be made to selected retail clients of RBC and its affiliates. RBCEL accepts responsibility for this report and its dissemination in the United Kingdom.
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To Singapore Residents: This publication is distributed in Singapore by RBC (Singapore Branch) and RBC (Asia) Limited, registered entities granted offshore bank status by the Monetary Authority of Singapore. This material has been prepared for general circulation and does not take into account the objectives, financial situation, or needs of any recipient. You are advised to seek independent advice from a financial adviser before purchasing any product. If you do not obtain independent advice, you should consider whether the product is suitable for you. Past performance is not indicative of future performance.
® Registered trademark of Royal Bank of Canada. RBC Capital Markets is a trademark of Royal Bank of Canada. Used under license.Copyright © RBC Capital Markets, LLC 2013 - Member SIPCCopyright © RBC Dominion Securities Inc. 2013 - Member CIPFCopyright © RBC Europe Limited 2013Copyright © Royal Bank of Canada 2013All rights reserved
AUSTRALIAN SECURITISATION MARKET SUPPORT – AOFM UPDATE
ROB NICHOLL – CEO, Australian Office of Financial Management 21 July 2020
TWO GOVERNMENT PROGRAMS TO SUPPORT SECURITISATION
01
The Australian Government has two programs to support the securisation
market:
1. ABSF – develop market through supporting a broader range of collateral
2. SFSF – maintain capital flow to smaller lenders during COVID-19 pandemic
Australian Business Securitisation Fund
• $2 billion becoming available over 5 years
• AOFM has identified parts of the market which are underserviced by lenders and where lenders struggle with term funding
• A distinguishing feature between RMBS and other parts of the securitisation market is the lack of relevant data for borrowers using less ‘mainstream’ collateral
• AOFM believes that a lack of uniform information on loan characteristics, performance and credit risk is a hindrance to wider investor interest
• The fund will invest in a way that will encourage lenders to provide ‘industry standardised data’ which ratings agencies and investors can use more generally
• Data aggregation, transparency, accessibility and an understanding of investor needs will promote a deeper and more efficient market
Structured Finance Support Fund
• Key objective is to support the flow of credit to the economy during the COVID-19 pandemic. Other measures include the Government providing SME loan guarantees, and the RBA’s Term Funding Facility.
• SFSF has three streams:
1. AOFM support for primary market deals (either by direct investment and/or by investing in secondary market to ‘release’ capital);
2. AOFM investing in existing warehouses to replace withdrawn investor support and/or to provide credit enhancement for increased exposure from senior financiers; and
3. A ‘Forbearance SPV’ that will allow originators to access temporary liquidity support for missed COVID-19 interest payments on assets in Trusts and repaying the support from future Trust residual income
AOFM website has more detailed information
• There is a range of supporting information about both programs on the AOFM website at:
• aofm.gov.au/absf
• aofm.gov.au/sfsf
AOFM Forbearance SPV – simplified structure
Anne-Marie Neagle
Partner | King and Wood Mallesons
0.00
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
Jan Feb March April May June July
RMBS/ABS Issuance (USD mm) - Australia
2019 2020
Source: JP Morgan
Source: JP Morgan
0.00
2,000.00
4,000.00
6,000.00
8,000.00
Jan Feb March April May June July
RMBS/ABS Issuance (USD mm) - UK
2019 2020
