Lending Association

The ASX 200 aims for a modest 26-point gain

The ASX 200 is set to seek a modest 26-point gain this morning following a strong finish for the SPI futures (early Saturday, Australian time). On Friday, the ASX 200 recorded a robust 74.7-point, or 1%, gain, closing the week at 7421.2. However, it still experienced a 1% loss for the week.

In New York, the S&P 500 achieved an all-time record close, rising by 1.23% to 4,839.81, surpassing the prior intraday and closing highs from January 2022. Meanwhile, the Dow added 395.19 points, or 1.05%, closing at 37,863.80, and the tech-heavy Nasdaq surged by 1.70% to 15,310.97.

The Australian dollar concluded at around 65.78 US cents in local trading and edged slightly higher, closing just under 66 US cents by the end of the week early Saturday morning, Australian time.

Iron ore futures in Singapore recovered on Friday, ending at $US129.65 per tonne, virtually unchanged from the previous week’s $US129.69 per tonne. However, it remains well below the peak of $US142.66 per tonne on January 3.

Gold, another influential factor for the ASX, ended at $US2,031.80 per ounce on Comex, slightly increasing after hours from the $US2,029.30 per ounce settlement on the continuous contract. Despite this, Friday’s close represented a just over 1% weekly decrease.

Comex copper closed at $3.79 per pound, marking a 1.46% increase for the week.

The Commonwealth Bank Stands Out Among Banks Amid Rate Cut Speculations

The Commonwealth Bank emerges as the standout performer among banks as investors seek to profit from an anticipated interest rate cut, though its occurrence this year remains uncertain. The central bank’s decision hinges on the progress of inflation, and even if the December quarter CPI next week matches the forecasted 4.3% (down from 5.4% in the year to September), it might not be enough to convince the central bank to implement a rate cut, especially considering central banks in the US and Europe have managed to keep inflation close to or under 3%.

Nonetheless, optimistic investors have helped boost bank share prices, despite the likelihood of another half of tightening net interest margins, a crucial measure for profits and revenues. This enthusiasm has propelled the Commonwealth Bank’s share price up more than 22% from its low in March, reflecting the “rate cut looms” narrative more than any underlying fundamentals.

The Commonwealth Bank is nearing its reporting date for the December half-year figures, generating heightened interest among investors. They anticipate a potential increase in interim dividends after the bank raised it by 20% to $2.10 per share for the December 2022 half-year.

In contrast, rivals NAB, ANZ, and Westpac will report their first-half figures on March 31, though they usually issue a brief first-quarter (December 31) trading update next month, around the same time the Commonwealth Bank is set to report on February 14.

What sets the Commonwealth Bank apart is its recent all-time high, while Westpac, NAB, and ANZ are all well below their respective highs. ANZ closed at a 52-week high on Friday at $26.13 per share, and NAB is not far behind, while Westpac still has some ground to cover. However, it’s essential to note that these are yearly highs, and their all-time highs were significantly higher. For instance, NAB’s all-time high dates back to 2007 at over $43 per share.

Globally, the Commonwealth Bank is highly sought after by investors, with a market value of approximately $A189.7 billion, equivalent to around $US125 billion. This makes it more valuable than the declining US major, Citigroup, which had a market value of $US98 billion at Friday’s close.

Despite past challenges, including downsizing, the sale of assets, and regulatory issues, the Commonwealth Bank appears to have reclaimed its status. In contrast, Citigroup is undergoing significant restructuring, with numerous layoffs in various foreign markets, including Australian consumer banking.

Both local and foreign investors seeking exposure to the central bank’s potential rate cut story have been buying into banks, with the Commonwealth Bank leading the way. Predicting winners before they are officially declared remains a favorite game among investors, large and small, and this explains the current strength in share prices, particularly for the Commonwealth Bank.