The Week Ahead: Australian Banks And Global Growth

This story features COMMONWEALTH BANK OF AUSTRALIA, and other companies. For more info SHARE ANALYSIS: CBA

By Andrew Nelson

Now that the RBA’s rate hold is out of the way, investor focus in Australia is poised to switch to company reports, banks in particular. Monday sees Bendigo and Adelaide Bank ((ADB)) release results, and on Tuesday take-over target (sorry: “merger partner”) St George Bank ((SGB)) is expected to use its scheduled market briefing to reiterate its earnings guidance for the year.

However, the big news this week will come from Commonwealth Bank ((CBA)), who is set to report full year results on Wednesday.

Will credit crisis comments, subprime woes and writedowns “that we forgot to mention” set the tune, or will there be some good news? If there is, it may lay the foundation that builds on the positive note that we finished on last week.

Analysts aren’t all that doom and gloom. Merrill Lynch expects a little bit better than sector average from CBA and ABN Amro analysts are predicting only a small chance of a bad debt surprise with the result.

Westpac ((WBC)) chief executive, Gail Kelly, voiced her opinion on Friday, saying there was no question that the operating environment has deteriorated at a more rapid rate than anticipated. Along with the disappearance of non-bank lenders such as RAMS, the big banks are playing hard in an environment of dwindling choice.

It looks like CommBank is going to be a bellwether for the local banks after this recent run of albeit timid optimism in the sector. The only other option would be to take a lead from the US banks, and nobody wants to do that.

Or do they?

A 300 plus point rally on the Dow Friday, driven by a 3.5% jump in finance stocks and a huge spike in the US dollar, bodes well on the surface. However, the underlying motive force for Friday’s jump in the US bodes less well for local investors.

Oil and gold dropped and commodity stocks were hammered on sinking metals prices. All this sent the greenback on a rocket ride against all comers. The euro took its biggest hit in eight years and the Aussie, not long ago at 98c, was down to 88c over the weekend. All more proof of a quickly deteriorating Australian economy. With BHP Billiton ((BHP)) and Rio Tinto ((RIO)) down 2.5% in overseas trade on Friday and with a weak outlook at best for the miners, how much can a bit of breathing space for the banks be worth?

Now that investors are expecting future RBA rate cuts and after Wednesday’s big local bounce, can a new optimistic sentiment come to the fore? One thing is certain, all eyes will be on the RBA’s quarterly monetary policy out later this morning. With even the most hawkish now back flipping to agree that a rate cut is coming, the question still remains: How much and when? The new bets are spread between 25-50bp from September to all the way out in February.

Even more importantly, if the RBA does signal a new cutting bias, will it be good news? Or will it be a last ditch manoeuvre to hold off a looming train wreck?

Most of the discussion on the RBA’s statement will centre on inflation forecasts. If recent data are any indication, it’s doubtful that underlying inflation will be back below 3%. Look at last week’s surprise jump in jobs growth.

August Consumer Confidence, due Wednesday, will be the first post-RBA policy statement gauge. With the July levels sitting at a point unseen since the economy was just emerging from the early 1990s recession, it could severe as a good  indicator as to how investors have reacted to the new “official view” on interest rates.

The wage cost index is also due out Wednesday and a restrained reading may help the case for further cuts. However, Westpac cautions it is too soon to expect a slowing in wage growth.

Consumer Inflation Expectations are due Thursday and should help lend a bit more post policy announcement context to whatever the RBA may say.

Corporate reporting shifts into a higher gear this week, extending beyond the local banks. While results reported remain important, accompanying outlook statements will be more important as investors look for direction.

Bendigo and Adelaide Bank’s ((BEN)) full year profit result, while not fancied by most analysts (minus 0.2 on the FNArena sentiment indicator), could support a more positive tone for the sector.

Tuesday sees much anticipated news from ABC Learning Centres ((ABS)), where some good news may go a long way to help it slow its recent fall from grace. The day also sees FY numbers from Worley Parsons ((WOR)), with most expecting a positive outcome.

SingTel ((SGT)) publishes 1H results the same day, where investors will take a close look at Optus’s numbers leading in to Telstra’s ((TLS)) full year report Wednesday. Citi, for one, are predicting a stand out result and an upgraded to the FY10 guidance from the big Aussies telco.

Leighton Holdings ((LEI)) is due to report full year numbers on Friday. Much is expected, with seven out of eight brokers on the FNArena data base keeping a Buy on the stock. Again, good news may go a long way to setting a positive tome over the weeks of reporting to come.

Outside Australia, the calendar this week contains sufficient data releases to further fuel, or soothe investor worries about growth in the world’s major economies. New Zealand sees retail sales, while Europe and Japan bring Q2 GDP growth, plus some more. There are plenty of data releases in the UK too, with this week’s consumer prices report likely the most watched (because of its interest rate implications).

In the US, this week’s data releases include CPI, retail sales, consumer confidence and industrial production. Japan and Europe bring some industrial production insights to the table as well. Europe’s release is on the calendar for later today.

For more details: see our four week calendar on the website.

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