No Change from RBA | Westpac Update

8 May 2019

Global markets sold off sharply overnight led by technology shares, as escalating trade tensions between the United States and China triggered global growth fears and kept investors away from riskier assets. Trade talks between the US and China are set for later this week.
 
Closer to home, the Reserve Bank of Australia kept the official cash rate on hold for a record 33rd month. Heading into the announcement the market was split 50/50, with many expecting an interest rate cut. The RBA also did not signal any clear intention that they are on the cusp of easing. Given this was somewhat of a surprise, it saw the ASX fall, while the Australian dollar jumped on the news.
 

Stock in Focus:Westpac (WBC:NZX / WBC:ASX)

​​​​​​​The Big Banks in Australia have started to report their profit results, with Westpac being the latest to make an announcement earlier this week.

Westpac saw its profits slumped 22 per cent in the first-half of the year, citing ongoing compensation costs and its decision to exit the personal financial advice market. Westpac enjoyed the mortgage boom more than most, and its consumer bank makes up about 40% of profits. There are clear risks around this segment given a slowing property market in Australia & NZ, which makes us cautious.
 
WBC shares appears to be trading at a cheap valuation compared to the past, while offering an attractive dividend. However, we believe the Australian banking industry is set to face a number of headwinds and would prefer ANZ over WBC as a lower risk proposition.
 
We currently have a HOLD recommendation on Westpac.
 

 

 
Australia & New Zealand Market Movers

​​​​​​The Australian share market was slightly higher on Tuesday (ASX 200 index -0.82%) despite the Reserve Bank of Australia's decision to keep the official cash rate on hold, wiping a strong early advance by the ASX. The major miners led the advance after Vale announced a Brazilian court had ordered it to halt operations at its Brucutu mine, raising investor expectations of further supply constraints in the iron ore market – BHP, Rio Tinto, and Fortescue Metals all made strong gains.
 
 
The New Zealand market made gains yesterday (NZX 50 index +0.67%) as the attraction of stocks paying reliable dividends remains strong in a low-interest rate environment. Meridian Energy, Chorus and Infratil were among the gainers. In stock news, Fonterra Cooperative Group will still be exposed to its former Chinese partner Beingmate Baby & Child Food Co, albeit one step removed, in a new supply deal with Bubs Australia.
 

3 Things Markets Will be Watching this Week

  1. ​​​​The US first-quarter reporting season gets into its final stages this week​, with some Aussie & Kiwi stocks also reporting​.
  2. The Reserve Bank of Australia makes an interest rate decision on Tuesday afternoon.         
  3. The ​Reserve Bank of NZ make an interest rate announcement on Wednesday.​
     

Have a Great Day,
 

Team

Global markets sold off sharply overnight led by technology shares, as escalating trade tensions between the United States and China triggered global growth fears and kept investors away from riskier assets.

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