Banks are plagued by fears of large AUSTRAC penalties for breaches of anti money-laundering and counter-terrorism regulations. Commonwealth have paid a $700 million fine, Westpac have already been charged, NAB alerted investors of potential liabilities in their annual report, while ANZ says there are no signs of transgressions.
In other problem areas, mortgage stress continues to rise, with Martin North (Digital Finance Analytics) estimating that 32.5% of households are now in mortgage stress “based on an assessment of their cash flow.” Worst hit are fringe suburbs, where the rate is as high as 60%.
Elsewhere, RBNZ eased their calls for major banks to increase Common Equity Tier 1 Capital (CET1) to 13.5%, with a further 2.5% comprising other forms of capital such as hybrids and convertible preference shares, and relaxed the phase-in from 5 to 7 years. But the changes will still $13.8 billion in additional capital, according to the big four banks. APRA, by comparison, requires a CET1 ratio of 10.5%.
The ASX 300 Banks index continues to trend lower, with declining peaks on the Trend Index warning of selling pressure. Expect retracement to test resistance at 7600; respect would confirm the target of 6800.
The ASX 200 REITs index is again testing support at 1600 after a false break above 1650. Breach of support remains unlikely, with financial markets searching for yield, but would offer a target of 1500.
Iron ore has made a bear market rally to test resistance at 90. Respect of resistance is likely and would warn of another decline.
A Trend Index peak near zero on the ASX 300 Metals & Mining index warns of another test of support at 4100 (neckline of a large head-and-shoulders reversal pattern). Breach would offer a target of 3400, while respect of support would indicate that a base is forming.
Declining banks are dragging the ASX 200 lower and another test of support at 6400 is likely. A resources sector reversal would increase the chance of top forming on the broad index
We maintain low exposure to Australian equities, with a focus on defensive and contra-cyclical stocks, because of our bearish outlook.