TikTok IPO: What to Expect From the Social Media Giant's Market Debut

In Australia, the latest Westpac-MI Consumer Sentiment Survey provided another encouraging update on the health of the consumer. An impressive 11.8% rebound over the past two months has left the headline index at 94.6, the strongest reading in over two-and-a-half years and well within striking distance of a ‘neutral’ reading. Most of the improvement in sentiment has been centred on forward-looking measures, namely year-ahead views on the economy (+23% vs. Sep) and family finances (+7.3% vs. Sep).

While the sub-indexes tracking ‘family finances versus a year ago’ and ‘time to buy a major household item’ have seen some improvement, they both remain at historically weak levels – consistent with evidence from card activity data that points to a limited pick-up in spending following the introduction of the Stage 3 tax cuts. An added complication was the reaction to the US Presidential Election, which saw sentiment deteriorate notably over the course of the survey week – the net effect being greater-than-usual uncertainty about how the rapid recovery in confidence may evolve as the year draws to a close.

Consumers remain confident in the jobs outlook – unsurprising given the strong growth in employment evinced by the labour force survey. Coming off a multi-month above-trend performance, employment growth slowed in October, printing a modest gain of 15.9k. However, that was still enough to keep the employment-to-population ratio unchanged at a record high of 64.4% – a signal employment is still keeping pace with historic population growth. A marginal easing in labour force participation also left the unemployment rate at 4.1% for a third consecutive month. These results, together with little-change in average hours worked and other broader measures of labour underutilisation, imply the labour market remains in robust health, with slack building only at the margin. If sustained, this trend will see nominal wages growth continue to moderate through 2025, but enough momentum persist to deliver further modest real income gains. The outlook for wages, inflation and RBA policy was discussed at length this week by Westpac Chief Economist Luci Ellis.

Before moving offshore, the latest NAB business survey provided further confirmation of a stabilisation in business conditions, the index marking time at +7 points in October. This is consistent with our view that economic growth is current at or near its nadir, having slowed to 1.0%yr mid-year. With consumers having begun to receive their tax cuts and monetary policy easing around the corner, businesses are becoming more optimistic on the outlook, confidence up seven points to +5 in the month. Westpac sees GDP growth accelerating to 1.5%yr by year-end, then 2.4%yr by December 2025.

Globally, financial markets this week continued to assess the implications of a second Trump presidency, attempting to ascertain the President-elect’s priorities through appointment announcements for the incoming administration. The US dollar rallied and longer-dated Treasury yields meanwhile rose as a Republican majority, albeit a slim one, was confirmed for the House of Representatives, giving President Trump more freedom to implement his agenda, centred around lowering taxes, deregulation and reducing immigration.

As we discussed this week, while an extension of the household income tax cuts due to expire next year should be easily achievable, agreement on other tax changes might prove more difficult and/or time-intensive to achieve, with views on next steps for tax policy varied even amongst Republicans. Import tariffs, another critical piece of Trump’s agenda, should support an expansion of domestic manufacturing activity, but only gradually and not without negative effects on consumers, with the price of imported and local production to lift. Note as well there is a timing difference too: tariffs will impact inflation and spending long before investment in new domestic supply can be planned, built and commissioned. We expect these policies to have a meaningful and sustained effect in consumer inflation which the FOMC will have to respond to in late-2026 when we have two 25bp rate hikes forecast – for full detail see Westpac Economics’ Market Outlook November 2024.

Between now and late-2025, the current disinflationary trend is expected to persist however, allowing the FOMC to reduce the fed funds rate to 3.375% by September 2025, a rate we regard to be broadly neutral for the economy. This week, October’s CPI report again confirmed that inflation pressures are benign, 0.2%mth and 0.3%mth increases in headline and core prices in line with the prior month as well as market expectations. Shelter is now the one significant laggard for inflation, with annualised and annual growth near 5%. The FOMC continue to show little-to-no concern over this item however, given rental growth for current agreements is close to zero. As the shelter component of the CPI factors these results in, annual headline inflation will tend from 2.6%yr currently towards the FOMC’s medium-term target of 2.0%yr.

Turning to Asia, just released October activity data for China showed authorities shift towards pro-active support is paying dividends, but more so that additional stimulus is necessary. Retail sales surprised to the upside, the annual rate accelerating from 3.2%yr in September to 4.8%yr in October, although year-to-date the pickup was considerably more timid, from 3.3%ytd to 3.5%ytd. House prices also responded to authorities’ directives, new and existing home price declines slowing abruptly, from -0.7%mth and -0.9%mth in September to -0.5% in October. Growth in fixed asset investment and industrial production was little changed though, at 3.4%ytd and 5.8%ytd.

Late last Friday, China’s run of policy announcements continued, a debt swap package already mooted detailed to the market. CNY10trn in new special bond issuance will be made available through two programs over 3 and 5 years to local governments to refinance ‘hidden debt’ onto public balance sheets. The primary benefit is an expected CNY600bn reduction in interest payments over 5 years. The measures will also aid the bring forward of infrastructure spending into late-2024 and early-2025 and ready local governments to buy up housing assets and land from 2025, another initiative previously announced, and intended to provide lasting support to home prices and construction. Authorities clearly remain focused on strengthening the financial position of both the public and private sector, removing impediments to growth and encouraging new activity. But by refraining from announcing outright stimulus, they continue to disappoint the market and, potentially, are putting confidence amongst consumers and business at risk.

Note though, last Friday, Finance Minister Lan Fo’an reportedly promised “more forceful” fiscal stimulus next year and, while discussing today’s data the NBS spokesperson pledged to achieve 2024’s annual growth target of 5.0%. As such, outright stimulus is arguably a matter of time, the length of the waiting period likely to depend on the evolution of US trade policy and global economic uncertainty.

GDP growth was strong at the start of the year but seems to have slowed down of late. Why is this?

Will the budget improve UK growth?

What do you make of the change of debt target from ‘Public Sector Net Debt excluding the Bank of England’ to ‘Public Sector Net Liabilities’?

And finally, with the Budget out of the way, what do you think the government should focus on now?

ESG issuance falls short to last year

For the first time in a decade, the supply of EUR sustainable bank bonds will not surpass the previous year’s volumes. With lending growth stagnating and overall supply activity by banks slowing down, ESG bond issuance by banks in 2024 is likely to end the year close to €75bn.

Banks globally have issued €70bn in EUR-denominated ESG bonds so far this year, down from €74bn last year. Covered bonds and preferred senior unsecured bonds represent 27% and 26% of the year-to-date ESG print, respectively, while bail-in senior issuance makes up 40% of the green and social use of proceeds supply. Subordinated bonds and RMBS have a modest share of 5% and 2%, respectively, in the 2024 ESG print of banks.

Lower issuance by banks will coincide with less ESG supply in 2025

Source: ING, *) Only bonds included with a minimum size of €250m

The slower ESG issuance by banks this year has been well spread across the different use of proceeds categories, with green, social and sustainability issuance all three slightly below last year’s YTD print. Green issuance still represents the bulk of the ESG supply with a share of 79%, followed by social issuance with 18%. Sustainability (i.e. a combined green and social use of proceeds) only made up 2% of the ESG issuance.

This shows that social bond issuance continues to struggle to gain momentum following the surge after the Covid-19 pandemic. Part of the reason is the stronger regulatory emphasis on green bonds, as outlined in the EU taxonomy regulation and the EU green bond standard.

In the unsecured segment, the proceeds use remains predominantly green. However, in covered bonds, social issuance is keeping better pace with green issuance. For example, social and sustainable covered bond issuance has reached nearly €8bn YTD, surpassing the €6.5bn in unsecured social and sustainable issuance. In contrast, the €11bn in green-covered bond issuance is only a quarter of the unsecured green supply.

Green will remain the dominant use of proceeds type

Source: ING, *) Only bonds included with a minimum size of €250m

The 2025 ESG print by banks will fall to €70bn

We anticipate a slight decrease in ESG supply by banks in 2025 compared to the previous year, with expected ESG issuance around €70bn. Of this, 80% is projected to be in green format. Banks are expected to issue €20bn less in total (including both vanilla and ESG bonds), and lending growth is forecasted to increase only gradually next year. Hence, sustainable loan portfolios will see modest growth.

Banks may find opportunities to further grow their sustainable assets through the criteria set in the EU Taxonomy’s environmental delegated act (e.g. to support the circular economy), but climate change mitigation will remain the key driver of green supply.

ESG redemption payments will rise from €15bn to €34bn. This will also free up sustainable assets for new ESG supply, but probably not for the full amount due to the changes made to some of the green bond eligibility criteria since the bonds were issued.

Banks will repay €34bn in sustainable bank bonds in 2025

Source: ING, *) Only bonds included with a minimum size of €250m

Limited issuance expected under the EU green bond standard

As of next year, banks can also opt to issue their green bonds under the EU green bond standard. Considering the low first green asset ratio (GAR) disclosures by banks this year, we doubt we will see a lot of bank bond supply under this standard. Based upon the Pillar 3 disclosures of a selection of 45 banks, the average Taxonomy alignment of bank balance sheets per country varies in a low range of 1% to 8%.

Green asset ratio disclosures point to low Taxonomy alignment

Source: Issuer Pillar 3 disclosures of 45 banks (1H ’24), ING

Given the low reported EU Taxonomy alignment of banks’ mortgage lending books, many banks may struggle to assemble a sufficiently large portfolio of Taxonomy-aligned assets to support green issuance under the EU GBS format. This is unless they are confident in the growth prospects of their Taxonomy-aligned assets within five years of issuance, particularly for standalone deals where a portfolio approach is not used.

Loans to households have a low Taxonomy alignment

Banks have few renovation loans outstanding and they are almost 0% taxonomy aligned

Source: Issuer Pillar 3 disclosures of 45 banks (1H ’24), ING

Regulatory initiatives, such as the Energy Performance of Buildings Directive (EPBD), promoting the renovations of buildings within the EU, should in time see the portfolios of Taxonomy-aligned assets grow. Given the timelines set, this will not be a major support in 2025.

To encourage banks to provide lending for the renovation of the worst-performing buildings, the European Commission is working on a separate delegated act for a comprehensive portfolio framework for voluntary use. The response period for the European Commission's call for evidence on the portfolio framework ended on 5 November, with the Commission now aiming to launch a public consultation on this topic before year-end. 

Timelines under the Energy Performance of Buildings Directive

Source: European Commission, ING

Banks with a more balance sheet size and the ability to select enough Taxonomy-aligned assets for a benchmark-sized deal are likely to be among the first to test the waters by issuing bonds under the EU Green Bond Standard.

For the issuance of bonds with a longer maturity, banks may wish to finance a distinct set of Taxonomy-aligned assets rather than allocate their bond proceeds to a portfolio used for multiple European green bonds (ie portfolio approach). If the EU Taxonomy technical screening criteria are amended, assets not meeting the amended criteria can stay part of the green portfolio for seven years at most. Instead, standalone deals will in principle keep their EU green bond status based on the old technical screening criteria if these are amended before the bond's maturity.

Industrial policy

Tough tasks