Good Morning,
Yes… It is Monday morning….
And guess what?
It’s May…
“Sell in May and go away?”… will this be relevant in 2016?
Maybe…
Global markets appear to be fragile, with US earnings providing to be “some-what” positive (although coming off a very low EPS expectations)
On Friday, the Bank of Japan sat still and didn’t unleash any further stimulus…
This week, we have our good friend, Glen Stevens, announcing whether the RBA will cut interest rates…
With core inflation at -0.3% and the Sydney property market cooling, we see no reason for the RBA not to cut interest rates when it meets tomorrow…..
In other news, Australian bank reporting season kicks off this week, with Westpac reporting today, ANZ Tuesday and National Australia Bank on Thursday.
So what can we expect from AUS bank earnings today? WBC comes out first… how big will the SGH write-down be? Will net interest margins fall? Cash earnings remain flat… all likely..
A lot to talk about the banks and focus will be on:
- Bad and doubtful debts: Westpac and National Australia Bank have exposure to law firm Slater & Gordon, NAB lent to Dick Smith, with ANZ and all three other majors exposed to Arrium. It is well known ANZ and CBA are overweight loans to miners with CBA highly exposed to the WA economy. In addition, ANZ and CBA are overweight Energy and New Zealand dairy. It is likely the banks which are perceived to have inadequately provided for these exposures will come under pressure
- Dividend cuts: Analysts are anticipating ANZ to include dividend cuts as a part of their recent firm wide restructure. A rise in bad & doubtful debt expenses is anticipated to be the catalyst for NAB to also cut dividends.
- Future capital raisings: all the major banks will be forced into a second round of capital raisings this year as a result of regulatory requirements. Look out for how much the first round reduced return on equity.
- Share price bounces: The ASX200 financial sector is down 18% this year, taking a hammering. I am a believer we will see similar scenarios like we saw with U.S. banks reporting a few weeks ago, decent share price spikes due to results that are not as bad as anticipated.
- Short positions: Short positions in bank shares are currently at their highest levels since 2011. ANZ on 2.9% shorted, NAB on 1.6% and Westpac on 2.7%. Short positions have risen 50% in 2016 as bank prices have fallen around 10%. As above, if we see “ok” data after relatively tough recent share price action and sentiment, expect some covering.
What's on today?
Local data: NAB's April business survey
Local earnings: Westpac half year results
Overseas data: Euro manufacturing PMI April; US ISM April manufacturing, US Markit manufacturing PMI April final, US construction spending March
Central bank watch: ECB boss Mario Draghi in Frankfurt, San Francisco president John Williams in Los Angeles, Swiss National Bank chief Thomas Jordan in Luzern.
Earnings: Sysco, General Growth Properties, Anadarko Petroleum, AIG, Ferrari
Stocks in focus
Banks report results starting today with Westpac; ANZ on Tuesday; NAB on Thursday; and, Macquarie Group on Friday. CBA reports on May 9.
The SPI is down 3 points this morning.
By Niv Dagan
