Global markets started the quarter with gains overnight as Energy and Bank stocks led moves on Wall Street. While trading was thin ahead of today’s 4th of July Holiday, the US Banks made gains on the back of higher interest rates, while a jump in the price of oil supported the Energy sector.
We have been cautious on the banking sector for some time now and have generally avoided buying the Big 4 Aussie banks.
The key risk for the Banks is the property market, and there has continued to be talk in both Australia and NZ of a property market correction or collapse ( see a full-blown collapse as very unlikely). The most recent warning was made by credit rating agency Moody’s which downgraded Australia’s Big 4 banks, plus 8 smaller ones, from Aa2 to Aa3 on their long-term rating. Negative sentiment of late has also been driven by a Federal Budget tax levy on Banks, as well as a South Australian government tax on Banks.
In saying that, the banks have seen their share price correct over 15% from a recent high in March, so the market has clearly digested the news flow.
Stock in Focus: ANZ Bank (ANZ.AX / ANZ.NZ)
ANZ has followed moves lower recently with the other 3 major Banks, although we believe ANZ is the most well capitalised and has a strong balance sheet. This among other things should support its dividend yield and raises the prospect of a return of cash to shareholders (particularly given proceeds from the sale of its Asian Divisions) in our view.
We are currently HOLD rated on ANZ shares, although it is our favoured of the Big 4 Banks and the only major Bank in our Australian Model Portfolio.
Members can login to read our latest report on ANZ.
Australia & New Zealand Market Movers
The Australian share market finished its first day of the financial year in the red (ASX 200 index -0.65%) with broad based losses with only the energy sector seeing a small gain. Investor jitters were stoked by a spike in bond yields on concern the Reserve Bank might follow other global banks by removing its neutral policy stance to warn interest rates were set to rise. The RBA makes an interest rate decision later today.
The New Zealand market was lower on Monday (NZX 50 index -0.26%) with light trading with Fisher & Paykel Healthcare giving back some of its June gains while Air New Zealand and NZX rose. On Friday, the NZX affirmed 2017 guidance for operating earnings of $27m-to-$30m. The company noted that if the current relatively subdued capital raising and securities trading conditions persist, it expects earnings to be in the middle of guidance but if conditions improve, it would deliver a result at the upper end.
3 Things Markets Will be Watching this Week
1. How the US Technology sector trades following the recent pullback.
2. Minutes from the US Federal Reserve’s June meeting will be released on Wednesday.
3. Important US employment data is released end of the week.
Have a Great Day,
Team
