Yet again we expect the ASX to open higher, with ASX futures up 0.2% to 7,437 at 6.30am AEDT.
That is despite the Wall St rally coming to an end, as inflation fears take hold.
The US producer price index rose in October, which indicates increases in the consumer price index.
The Dow Jones, S&P 500 and the Nasdaq were all in the red.
However, cryptocurrency hit new highs as bitcoin surged to $US68,513.
Here’s what we saw:
- The Aussie dollar fell from highs near US74.30 cents to lows near US73.60 cents and was near US73.80 cents in afternoon US trade.
- Global oil prices rose by up to 2.7% on Tuesday. Commsec reports, “The US lifted travel restrictions. And the Energy Information Administration only tipped a small increase in gasoline prices in 2022. The modest increase may mean the US President will restrain from tapping into the Strategic Petroleum Reserve.”
- The Brent crude price rose by US$1.35 or 1.6% to US$84.78 a barrel.
- The US Nymex crude price rose by US$2.22 or 2.7% to US$84.15 a barrel.
- Base metal prices fell by 1.1-1.8% on Tuesday with aluminium down the most.
- Tin rose by 0.7% and zinc rose by 0.2%.
- The gold futures price rose by US$2.80 or 0.2% to U$1,830.80 an ounce.
- Spot gold was trading near US$1,8298 an ounce at the US close.
- Iron ore fell by US$1.40 or 1.5% to US$92.45 a tonne.
Australian markets
The ASX is expected to rise this morning, but we won’t hold our breath.
We’ll recap what happens this morning in our early afternoon report.
In the meantime, KPMG has released its Major Australian Banks Full Year Analysis Report 2021, which has found that the majors reported a combined cash profit after tax from continuing operations of $26.8 billion, up 54.7% on FY20 (but down 2.3% on FY19).
The professional services and big four accounting organisation reports that writebacks of collective provisions of $1.7 billion, compared to large collective impairment charges totalling $6.9 billion in 2020 in response to COVID-19, have had a big impact on the shape of the major banks’ profit results.
The underlying performance trajectory is less turbulent than the headline numbers suggest. Total operating income (on a cash basis) was up 0.1% on 2020 and down 1.5% on 2019. This almost flat revenue picture is more consistent with the single-digit percentage decline of cash profits between 2019 and 2021.
In essence, our major banks have enjoyed a turnaround from last year, as the Australian economy entered a new phase of its COVID-19 pandemic response.
The banks played a significant role in supporting Australia’s recovery in 2020 and have benefited from the country’s improved economic performance in 2021.
“In 2021, the banks have been able to shift their focus from economic support to recovery. After stabilising themselves from the initial impacts of the pandemic, they now arrive at a new transition point. In 2022, they will need to start delivering on their transformation programs and positioning for a future that will be very different to the past,” KPMG Australia’s head of Banking Ian Pollari said.
“The transformation imperative for the banks includes a revenue growth challenge. The majors are all looking at new ways to create value that will better serve their customer needs while opening up growth opportunities. This will require them to genuinely innovate around their business models at the same time as ensuring their operating models are future-fit,” Pollari said.
The trend among the big four has been to reinforce their balance sheets. KPMG reports the banks have resumed more generous dividend payments (with a dividend payout ratio of 70.0%, up from 52.3% in 2020 but still down from 81.3% in 2019) and continued to retain profits and proceeds from simplification divestments to further raise their CET1 ratio by 131 basis points to an “unquestionably strong” 12.7%.
They managed to raise their capital levels while collectively buying back $13.5 billion worth of their own shares.
KPMG Banking partner Maria Trinci said, “After the profit and dividend disruption of 2020, the majors have reverted to returning significant sums to their shareholders. However, they are clearly continuing to balance dividend payments with balance sheet strength. Now the big question is how they will use their strong balance sheets productively in the future and unlock new sources of growth.”
One thing that may be of concern to the banks is the inability to structurally reduce costs in 2021. While the average cost-to-income ratio decreased from 2020 by 116 basis points to 52.1%, the underlying cost-efficiency ratio excluding notable items went backwards by 155 basis points. Regulatory compliance requirements, ongoing customer remediation and increased processing volumes have resulted in strong FTE growth across all majors.
KPMG’s Banking Strategy lead Hessel Verbeek said: “At the same time as lowering their operating costs, the majors will need to continue to invest in growth and transformation. This balancing act requires them to re-think and transform their operating models, especially through organisational simplification and greater levels of process automation and digitisation.”
The full report will be available on the KPMG website later today.
Australian indices
- ASX 200 fell 0.24% to 7,434.20.
- ASX24 futures rose 0.3% to 7,440.
- S&P/ASX Small Ordinaries rose 0.70% to 3,583.50.
- All Ordinaries fell 0.15% to 7,756.30.
US markets
US stock benchmarks were lower on Tuesday.
It ended a run of highs based primarily on third-quarter earnings. However, it seems lingering concerns about inflation have been amplified by supply-chain bottlenecks heading into the holiday season.
Sending the market down was the performance by Tesla, which lost 11.99%.
Telsa has come under pressure since Tesla CEO Elon Musk signalled that he might sell a sizable chunk of his shares.
In US economic data, the October producer-price index rose 0.6%, in line with expectations.
The pace of wholesale inflation over the past 12 months was flat at 8.6%, but it was still the highest it has been since the index was reconfigured in 2009, and according to Market Watch “likely one of the highest readings since the early 1980s”.
US indices
- Dow Jones fell 0.3% to 36,319.98.
- S&P 500 fell 0.4% to 4,685.25.
- Nasdaq fell 0.6% to 15,886.54.
European markets
European markets were slightly weaker on Tuesday.
Banks fell 0.9% in line with lower bond yields and basic resources fell 1.1%.
Retail bucked the trend, rising 1.1% with real estate up 0.6%.
In London trade shares in Rio Tinto fell by 0.7% while BHP shares fell by 1.5%.
European indices
- STOXX 600 fell 0.22% to 482.57.
- German Dax was flat at 16,040.47.
- UK FTSE fell 0.4% to 7,274.04.