Global markets rallied overnight as investors digested corporate earnings season and a move higher in the price of iron ore supported resource stocks.
The US market is trading near records as while IBM fell to a one year low as quarterly revenue was lower than expected, Morgan Stanley rose after the bank reported better than expected profit figures. As we touched on earlier this week, US earnings season will be watched as closely as ever given the current level of the market.
Both the Australian and NZ markets were higher yesterday led by positive sentiment across the big Aussie Banks. The ASX rallied +0.8% while the NZX was up +0.2% to a new record high.
Stock in Focus: ANZ Bank (ANZ.AX / ANZ.NZ)
The Aussie Bank shares enjoyed their best day in 8-months yesterday on a relief rally that new capital requirements imposed on them weren’t as tough as many had feared. ANZ jumped +3.9%, Westpac +3.8%, NAB +3.1% and Commonwealth Bank was +3% for a cumulative gain of around $14bn in value.
In terms of details, the Australian Prudential Regulation Authority (APRA) released new "capital adequacy" targets and will require a 150-basis-point increase in the minimum safety reserves that must be held by the big four banks. The banks will need to lift Tier 1 equity ratios to 10.5% by January 2020.
The requirements do not seem onerous, and importantly will mean that the banks dividend pay-outs will not be affected, in our view. Of the 4 Big Aussie Banks has preferred ANZ given its strong capital position and balance sheet.
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