Bad News For Aussie Banks

Posted on | by Todd | Leave a Comment on Bad News For Aussie Banks

Australian banking names received a double-dose of bad news last night as the Parliament passed the $6.2 billion banking levy and Moody’s downgraded their long-term credit ratings citing risks associated with the local housing market.

Shares in all the major banks have opened lower today with Westpac half-a-percent lower. The banking stocks have posted a rebound over the last few sessions but now look poised to re-test the lower price levels seen in early June.

Our ongoing concern about the banking sector’s current valuations have been: limited growth in the loan generation area, as well as, deteriorating quality of their overall loan exposures.

The banking levy, which commences July 1st, and the prospects of higher funding costs due to the credit downgrade won’t improve the banking sector’s profitability over the longer-term.

ANZ

CBA

MQG

NAB

WBC

Weaker Housing Data Could Drag On US GDP

Posted on | by Todd | Leave a Comment on Weaker Housing Data Could Drag On US GDP

Prior to the market open on Friday, the US Commerce Department announced that Housing Starts fell fort a third straight month in May and has reached the lowest level of new home construction in eight months.

This development, along with a drop in Consumer Sentiment and Building permits, suggest that general construction has declined broadly during 2017 and could be a headwind to economic growth over the second quarter of the year.

This slowdown may have earnings implications  for the US divisions of Boral and James Hardie.

 

 

 

 

SHIBOR Spikes Higher

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SHIBOR refers to the “Shanghai Interbank Offered Rate”. On Friday the one-month rate stood at 4.65%, the highest in over two years.

To put this in perspective, one-month rates in the US are at 0.85% and one-year rates in Australia stand at 1.63%.

And while Chinese central bank officials reject any suggestion that the tighter lending rates were a sign of instability or a source of increased financial risks, global financial markets have been acutely impacted by Chinese banking shocks in the past.

At this point, the one-month SHIBOR rate is now higher than the one-year Chinese Prime lending rate of 4.30%, which is unsustainable.

The knock-on effect is that a sharp contraction of Chinese capital flow will reduce Australian exports and could even distress local real estate markets.

We will watch this development with interest and how it could translate into the Australian share market.

Chinese SHIBOR