Increased capital requirements no surprise for bank sharheholders

This soft tone to this morning’s market opening indicates that investors have finished the process of unwinding the risk premium built into valuations as a defence against any unforseen complications from a “Grexit”

With the Grexit risk now behind them, the macro focus for investors will turn to the outlook for interest rates, the state of China’s economy and the upcoming reporting season. Recent statements by Bank of England Governor Carney indicate that the Fed won’t be the only major central bank lifting rates in 2016. The Bank of England seems likely to follow the Fed by making a start on monetary tightening next year. How far commodity exporters, like Australia, lag behind the Fed and Bank of England in the monetary tightening cycle will have a lot to do with China’s economy.

Gold stocks have been a casualty of ongoing expectations for higher US interest rates. This morning’s news that Newcrest has had to suspend production at its Hidden Valley mine has combined with the weaker gold price to see it sold off 3.5% this morning. Newcrest’s share price is now back testing its 200 day moving average at $12.44

While the financial sector is weaker this morning, this appears to be in line with the generally soft tone of the overall market and not a reaction to this morning’s news on the amount of capital APRA will require the major banks to  have  to back residential mortgage loans. The increase to a 25% risk weighting has been built into expectations for some time.

The loss of upward momentum over the past couple of days, has seen the ASX 200 index stall at the potential resistance of the half way mark of the April/July sell-off. If the index moves below Thursday’s low before at 5643 before it moves higher, it will signal a downward correction is getting under way.