Big Four Aussie Banks Edge Up on Global Yields

ANZ Banking Group

Australia’s big four banks all climbed this morning.

  • Westpac Banking Corp [ASX:WBC] is up 1.42%, to $35.08.
  • National Australia Bank [ASX:NAB] edged up 1.02%, to $33.08.
  • ANZ Banking Group [ASX:ANZ] climbed 0.71%, to $31.82.
  • Commonwealth Bank of Australia [ASX:CBA] rose 0.65%, to $83.77.

In dollar terms, the big four Aussie banks collectively added $4.17 billion to their market cap.

What happened?

Overnight, analysts got a glimpse of the US ADP non-farm employment figures. This covers the monthly change in non-farm private employment.

Analysts want to a see big, positive number that shows a significant increase in US jobs creation. The more people earning incomes, the more likely it is they will spend and spur on inflation.

You can think of this figure as a barometer for the US economy.

For the most recent ADP non-farm release, analysts expected an increase of 184,000 jobs. But they were pleasantly surprised when the figure came in at 298,000 jobs.

The positive news sent US bonds yields to their highest level in 7.5 years. It also sent Spanish and German bond yields higher.

With a US rate rise expected on 14 March, investors are moving out of gold and into stocks.

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What does this have to do with Aussie banks?

A rise in bond yields means investors are expecting interest rates to rise. For example, if the 10-year bond yield rises, then investors expect interest rates will likely rise over a 10-year period. The same is true for a five-year bond or even 90-day bank bill.

An interest rate rise is great news for banks. It gives them the green light to increase their own lending rates. Thus, their revenues jump due to higher interest payments on variable rate loans.

But nothing has changed yet. The US Federal Reserve hasn’t yet lifted rates. Who says the Reserve Bank of Australia (RBA) will raise rates soon?

But investors are trying to get in early. If the RBA does raise rates unexpectedly, their returns will rise as more investors pile into lending institutions.

Regards,

Härje Ronngard,

Junior Analyst, Money Morning

PS: It’s not always easy to find growth among billion-dollar stocks. Unless they can significantly increase earnings, you’d be lucky to get double-digit returns. That’s why some investors prefer the smaller end of the market.

Small-cap stocks are a riskier investment. There is no running away from it. But they can potentially grow earnings 10-fold in a short space of time.

Small-cap specialist Sam Volkering has been on the other end of small-caps running up 1,000% or more.

So far in 2017, Sam hasn’t recommended a losing stock yet. In his advisory service, Australian Small-Cap Investigator, his top three active investments are up 304.57%, 466.04% and 1,624.49%.

To find out more, click here.

Harje Ronngard

Harje Ronngard

With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation.

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