Market Matters Afternoon Report Tuesday 5th July 2016

Afternoon Report 05/07/2016

Market Matters Afternoon Report Tuesday 5th July 2016

Good Afternoon everyone

Market Data

What Mattered Today

The market was lower today – dragged down by the banks with resources unable to offset the selling as was the case yesterday. A flat open, some decent selling thereafter before a pretty subdued middles section. The RBA decision at 2.30pm (no change to rates as expected ) saw sellers re-enter and we closed near the lows.

A range of +/-61pts. 5221 low, 5282 high and a close at 5228; down -53pts or -1.02% with the big 4 banks taking -16 index points from the 200.

Banks were the weak link again today and it seemed like it was more about capital uncertainty than the current election debacle following an update from APRA around capital requirements. In 2015 the Australian banks raised significant amounts of capital as a direct consequence of the Financial System Inquiry (FSI) based on its recommendation for capital positions to be “unquestionably strong”.

In a practical sense, it meant that Aussie Banks needed to be in the top quartile internationally which implied CET1 capital of 13.5%. WBC and CBA are above that now with NAB and ANZ slightly below, but from a sector perspective, they looked on track – and importantly, could plug any shortfall through less aggressive means such as underwriting their dividend reinvestment plans.

APRA are now saying that banks are currently meeting these requirements but - and this is the important bit, those requirements are rising over time. Whatever the case, the read through today seems that APRA wants higher levels of capital one way or another and the risk seems to be to the upside- the extent of which will be known in about 6 months.

So – another level of uncertainty/complexity for banks at the moment and unsurprisingly, we saw another weak day for the sector.

Sectors Today

Source; Bloomberg

ASX 200 Movers

What Matters Overseas

U.S markets back on after yesterday’s Holiday….EUROPEAN FUTURES mostly lower

Regards,
The Market Matters Team
28-34 O'Connell St
Sydney, NSW 2000

All figures contained from sources believed to be accurate. Market Matters does not make any representation of warranty as to the accuracy of the figures and disclaims any liability resulting from any inaccuracy. Prices as at 5/07/2016. 4:30PM.

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