Short term relief about the banking sector is likely to steady nerves, at least temporarily in early trading. A solid profit result from CBA coincides with Deutsche Bank’s stock price climbing off its low in late New York trade.
None of the concerns markets have about banking stocks are yet apparent in CBA’s result. Investors are likely to be pleased with solid volume increases in CBA’s business. CBA has been able to achieve these volume gains while keeping its net interest margin flat. Given CBA’s dominant position in the Australian economy, this suggests underlying conditions in the broader economy although patchy, are reasonable in the aggregate.
CBA’s result today reveals that 78% of its home loan customers are paying their mortgages in advance by an average of 29 months. This provides a considerable buffer against any downturn in the employment or housing markets. However, Australian bank interest margins could still be pressured by any significant increase in international credit margins should concerns over European banks continue to rise.
Another sell-off in oil prices will be a sobering note for today’s trading. Last night’s big drop in oil creates the possibility of a test of the late January lows. A move to new lows in oil would be a blow to market confidence, raising concerns about the potential for bad debts in the energy sector and increased pressure on international credit markets.
Janet Yellen’s testimony before Congress over the next two days could be a significant market event with potential to either calm market or inflame market nerves. Markets will be focussed on her comments on credit markets. They will also be focussed on what she has to say about the possible impact of recent volatility and US economic statistics on the Fed policy.
Japan’s stock market will be among the many things traders will need to focus on today. Ongoing strength in the Yen will have the market on tenterhooks again. Another bad day for the Nikkei Dow will be a negative for regional sentiment.