The ASX drove higher today, with the S&P/ASX200 gaining 52.50 points or 0.73% to 7,272.50 and crossing above its 125-day moving average. Over the last five days, the index is virtually unchanged, but is currently 3.90% below its 52-week high.
The top performing stocks in this index are Lynas Rare Earths Ltd and Life360 Inc. (ASX:360), up 11.47% and 8.09% respectively.
“The Australian stock market has continued to unfold as expected, as it fell for seven days into the low on 27 April before rising two Fridays ago and Monday of last week,” writes Wealth Within founder and chief analyst Dale Gillham.
“Short rebounds like this are not uncommon when the market is falling, which often catches investors out. This week has been no exception, as the Australian market resumed its fall into my target zone of around 7,330 points over the last three days to Friday.
“On Thursday last week, the All Ordinaries Index fell to 7,336 points before rebounding to close the day up at 7,388 points. Friday’s gains to close out the week even higher, should set the scene that the coming weeks are likely to be bullish.
“Again, investors need to remain patient this week until the market confirms it has completed its current move down. As I have previously indicated, there are many opportunities in the market that will reward the patient investor. Remember, buying in hope that a bull market will unfold is unwise and should be avoided at all costs.”
What’s happening with Bitcoin?
Bitcoin is falling on the back of recession fears.
eToro Market Analyst Josh Gilbert discusses the sharp fall and US inflation figures:
"Bitcoin has started the week with a sharp fall, with investors digesting tighter credit conditions that are stoking recession fears.
“This week will also see US inflation figures released, which is important given five of the last six US CPI readings have come in softer or in line with market expectations, causing bitcoin to rally in the minutes succeeding the data. Another reading below expectations will likely drive bitcoin back up towards that US$30,000 mark, given it should point towards the end of the Fed’s hiking cycle and spell rate cuts by year-end.
“However, Bitcoin facing a potential recession is uncharted territory for the asset, putting some investors on edge. Recessions tend to mean that investors rotate away from riskier assets and look for a flight to safer haven assets, of which bitcoin and crypto assets are not. Despite this, bitcoin’s resilience this year, with inflation still elevated and interest rates near decade highs, shows that investors aren’t willing to run at the first sign of difficulty.
“It’s important to remember that bitcoin was born out of the last real global recession and current banking issues are helping to promote the case for using decentralised assets. Bitcoin’s potential resilience in the face of a recession could further strengthen this use case considerably."
Strong results for the majors, but for how long?
Westpac posted an interim profit of $4 billion on the back of its consumer and business divisions, but warned of margin pressure for home loans and “more stress” ahead, particularly for small business.
The banks statutory net profit rose 22% for the six months ended March 31, compared to $3.28 billion in the same period a year earlier.
“While the Australian economy remains resilient with low unemployment and high population growth, it is expected to slow over the remainder of 2023. Credit growth – both housing and business – will ease,” Westpac chief executive Peter King said. “Intense mortgage competition is expected to negatively impact industry and Westpac’s margins in the next half.
“Interest rates are now closer to their forecast peak, but we are focused on how long they stay high and what this means for household budgets and discretionary spending. We expect to see more stress in the period ahead, particularly in small business.”
Westpac’s profit comes on the back of National Australia Bank’s $4 billion profit last week. The Commonwealth Bank of Australia will release its numbers tomorrow.
In light of the strong performances, KPMG analysis finds that the Australian major banks’ strong financials for the first half of 2023 are driven by continued growth of the loan portfolio and improving net interest margins.
KPMG’s Australian Major Banks Half Year 2023 Results Analysis finds that the majors reported a combined cash profit after tax from continuing operations of $17 billion, up 16.6% on 1H22.
The RBA’s tightening of monetary policy was the key driver of net interest margins increasing by 14 basis points on 1H22 to an average of 190 basis points. Consequently, net interest income increased by 17% compared to 1H22, to $37.7 billion.
While margins have now returned to levels not seen since 2019, and interest earning assets increased by 8.6% from 1H22, margins are under pressure from both intense pricing competition in the home loan market, and a significant increase in interest expense to $46.1 billion, up from $8.7 billion in 1H22 and $14.3 billion in 2H22, driven by the rising cost of deposits and wholesale funding.
Steve Jackson, KPMG Australia head of Banking and Capital Markets commented: “In this reporting period we see the Majors have grown both the volume and profitability of their loan books. However, this is now being offset to a degree by the more than 400% increase in interest expense compared with 12 months ago, driven by the rising cost of deposits and wholesale funding.”
KPMG said rising costs continue to challenge the majors. The average cost-to-income ratio decreased from 49.3% in 1H22 to 44.3%. Overall, however, operating costs have increased compared to 1H22 by 2.6%. The decreasing CTI ratio is due to income growth outpacing cost growth, rather than costs falling in absolute terms.
Employee expenses increased by 4% during the half-year, after remaining relatively flat during FY22, on the back of a 3% increase in headcount. In addition, technology spend increased by 3%. Investment spending has been relatively stable across the majors. However, there has been an overall shift away from risk and compliance investment spend, with an increasing share of investment in productivity and growth initiatives.
“The majors’ overall cost base continues to rise, despite significant investment in digital capabilities. In this period the increase in revenue has outpaced the growth in costs, but there clearly remains a significant opportunity for the majors to decouple headcount and cost growth from revenue growth,” Jackson said.
In terms of capital and liquidity, liquidity positions across the majors are well above regulatory minimums of 100% although the average liquidity coverage ratio (LCR) decreased to 131%, down 100 basis points from 2H22. Balance sheet strength has remained a core focus for the Majors with average CET1 of 12.3%, an increase of 62 basis points compared with 2H22, driven by a significant fall in share buy-back activity compared with 1H22.
“While the headline results for the period are positive for the majors, there are early signs of stress in the loan portfolio as a result of the soft economic outlook. With interest rates elevated, the majors are seeing a margin benefit, but this is being eroded by a combination of loan pricing competition, funding cost increases and a continued rise in bank costs,” Jackson said.
Five at five
Immuron readies for traveller’s diarrhoea-targeted clinical trial as FDA removes clinical hold
Immuron Ltd (NASDAQ:IMRN, ASX:IMC), an immunotherapy-focused biopharmaceutical company based in Australia, is readying to proceed with clinical evaluation of a new oral therapeutic targeting Campylobacter and Enterotoxigenic Escherichia coli (ETEC) following approval from the US Food and Drug Administration (FDA).
Read more
Cooper Metals takes to the skies for pivotal Mt Isa East survey
Cooper Metals Ltd (ASX:CPM) has kicked off a versatile time-domain electromagnetic (VTEM) survey over a newly granted tenement at its Mt Isa East copper-gold project in Queensland.
Read more
Australian Vanadium shares rise as global mining-focused alternative investment firm increases stake
Prominent global mining-focused alternative investment firm Resource Capital Funds (RCF) has shown further confidence in the battery minerals strategy of Australian Vanadium Ltd (ASX:AVL) through a significant recent on-market purchase of AVL shares.
Read more
Leeuwin Metals begins drill testing nickel sulphides at William Lake Project just six weeks after listing
Wasting no time in getting boots on the ground and drills in the dirt, Leeuwin Metals Ltd (ASX:LM1) has kicked off a 5,000-metre diamond drilling program at the William Lake Nickel Project in Canada, targeting high-grade nickel sulphide mineralisation.
Read more
Krakatoa Resources makes clay-hosted REE discovery at the Rand Project’s Ryan prospect in NSW
Krakatoa Resources Ltd (ASX:KTA) is confident it has hit upon a new clay-hosted rare earth element (REE) province at the Rand Project in the Riverina of southern NSW.
Read more
On your six
2023 RIU Sydney Resources Round-up set to be “biggest yet”
The 2023 RIU Sydney Resources Round-up will be one of the biggest in the event’s 18-year history with 90 listed exploration and mining companies presenting.
Read more
The one to watch
Southern Hemisphere Mining ‘one of the cheapest copper stocks on ASX’
Southern Hemisphere Mining Ltd (ASX:SUH) chairman Mark Stowell tells Proactive the company’s Llahuin copper/gold project in Chile is turning into a very interesting project of scale.
Watch