Bad Day for the Biggest Aussie Banks

26.10.2016 • Central Banks

By Kris Sayce – Port Phillip Insider (Australia) –

In anticipation of the upcoming bank results, the banks’ stock prices have begun to react.

As we write, the Big Four banks’ shares are performing thus:

  • National Australia Bank Ltd [ASX:NAB], down 1.6%
  • Australia & New Zealand Banking Group Ltd [ASX:ANZ], down 1.4%
  • Westpac Banking Group Ltd [ASX:WBC], down 1.5%
  • Commonwealth Bank of Australia [ASX:CBA], down 1.8%

Not good.

In truth, it’s not a happy day for the Aussie market in general. BHP Billiton Ltd [ASX:BHP] is down 1.6%.

But the real action is among the banking stocks. Bank of Queensland Ltd [ASX:BOQ] is down 2.6%. Bendigo & Adelaide Bank Ltd [ASX:BEN] is down 1.8%.

And overall, as I write, the Aussie market is now down over 100 points. That’s a 1.84% drop.

But the outlook for bank earnings isn’t the only reason Aussie stocks are tumbling. There’s another reason. You got it. It’s to do with those meddling central banks.

As Bloomberg reports:

Australia’s headline inflation accelerated last quarter, sending the currency up half a U.S. cent and prompting money markets to pare bets on an interest-rate cut.

Yesterday, the chance of the Reserve Bank of Australia (RBA) cutting rates next week to 1.25% was 16.6%. It wasn’t a big probability, but some thought it could happen.

Today, following the inflation news, the chances of a rate cut are just 4.1%.

You know the drill with this stuff. Higher inflation means it’s less likely the RBA will cut interest rates, which means less cheap money to boost stock prices.

It’s New Market Economics 101.

If you haven’t already gotten used to it, what’s wrong with you? This stuff has played out for over eight years. And it’s not likely to change anytime soon.

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