Banks leave the station – all aboard!
A very buoyant market today however it was courtesy of strong buying in the banks, and not much else, with the BIG 4 accounting for all of the gains for the ASX 200 / +45.29 points in fact versus a market that was up 44.7pts! Clearly the banks are dominant on the Aussie mkt and the relief around new capital requirements was clearly at play today. It now seems probable that the banks will generate capital organically to meet the new thresholds set out by the regulator – and they’ll have long enough to do it.
Each bank is a little different with ANZ having the strongest capital position, mainly because they’ve been selling capital hungry Asian businesses (which will impact growth – but hey, the mkts are more focussed on Capital this week). Commonwealth Bank has the biggest task to complete – something in the range of $3.5bn in new capital required however they too should get this done organically over time.
All up, the news means banks are not cum-cap raise and that overhang is now gone – a big positive. From bank levy’s, increased capital requirements & RBA interest rate hikes, banks have clearly copped it on the chin for some time, however the clarity that has now been provided should bode well for bank share prices from here.
Today, ANZ was best on ground adding +3.92% to close at $29.41 while CBA was the weakest adding +2.96% to close at $83.81. We own WBC, CBA & NAB in the MM Portfolio, all from lower levels.
Commonwealth Bank (CBA) Daily Chart
On the broader market today, the banks the standout while Telstra dragged the Telco’s lower – down by -1.40% - an overall range of +/- 45 points, a high of 5743, a low of 5698 and a close of 5732, up 44pts or +0.79%.
The ASX 200 is still trading in a neutral pattern on the daily chart, however as discussed this morning only 8-trading days remaining this July, the statistical fact remains a break of the current 5629-5836 trading range should occur shortly and follow through for at least 50-points. Our “gut feel” remains we will get a relief rally in the dominant banking sector which should see the market higher into month end.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
BHP Production Numbers; out this morning and some good parts and not so good parts + some decent variance in terms of production guidance for FY18. All up, theybeat iron ore and petroleum guidance in FY17 whilst coal and copper were softer (weather/strike) as expected. In terms of guidance, they downgraded US onshore production in FY18, however that’s actually a marginal positive to earnings (given it was loss making). All up, an OK report and we are still keen on BHP. Interestingly, if we plug in spot prices we get an earnings increase of +20% for BHP! We own BHP from lower levels.
BHP Daily Chart
Telstra on the other hand looks weak and going lower in our opinion ($3.70 target). We think they’ll cut the dividend and this argument gained some traction this morning (in the Australian) following an interview on Sky Biz, with the Chairman commenting. “Boards review dividend policies all the time and we live in an extremely changeable world at the moment,” he said. “It’s fascinating that the potential competitors of the future, not the traditional Optus or Vodafone but more likely the Amazons of the world, don’t pay a dividend.” According to Mr Mullen, this evolution of established business and investor models has been critical in driving the success of the tech giants, giving them an advantage over the incumbents.
“They reinvest their ever-growing cash flow into cheaper and better products to gain market share,” he said. “I think there’s going to be a growing divide between some of the older established companies and the newer companies, not just because of technology but also because of the new investor models. “If Telstra didn’t pay dividends for 10 years we would have a $50 billion war chest to take on the new competitors,” he added (Source; The Australian)
Telstra Daily Chart
Have a great night
The Market Matters Team
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