The bank reporting season got off to a soft start with Westpac’s result this morning. The impact of competition on margins leading to a decline in Treasury earnings underscores the fact that it’s a hard grind for many companies dependant on the Australian economy at present.
While Westpac’s overall result was solid, the slight miss on expected cash earnings and the fact that it will raise capital to neutralise its dividend reinvestment policy comes against a background of relatively full valuations’ for bank stocks. This may see it struggle to hold value especially once it trades ex dividend. Whether this translates into rotation out of Westpac and into other banks or simply nervousness about the whole sector will be a key factor for the ASX 200 index which is heavily weighted towards bank stocks.
A rally in US stocks on Friday should provide a firm opening this morning, despite mixed results on commodity markets as investors await a heavy round of data releases this week.
This morning’s building approvals figure will be a market focus ahead of tomorrow’s RBA meeting. While monthly headline figures for building approvals tend to be very volatile, markets will be looking for the overall trend of a strong increase in apartment construction to offset weakness in non-residential building.
Today could be a significant day for the technical outlook on the ASX 200 index. If the index is able to rally past Thursday’s high at 5832 it will look like a rejection of the March lows of 5749. This will confirm a sideways, rectangle pattern bounded by this support around 5750 and the multiple highs at 6000. If this pattern is confirmed, the direction in which the index eventually breaks out of the rectangle is likely to signal the direction of the next significant market move.For further comment from Ric Spooner please call 02 8221 2137.