How the Coronavirus is expected to impact Australia's big four banks
‘With the rapidly changing environment and the continued outbreak of COVID-19 the market is now fully pricing in a 25bp cut at tomorrow's RBA meeting.’
Last week the market was pricing in just an 18% chance of a 25 basis point cut from the RBA this Tuesday.
By mid-afternoon today that chance had skyrocketed to 120%, according to Westpac analysts.
The catalyst behind this dramatic change?
The Coronavirus.
As IG’s Market Analyst, Kyle Rodda, wrote this morning, the markets are leaning strongly towards an interest rate cut, ‘In response to the economic devastation expected to be brought about by the coronavirus.’
UBS analysts echoed Mr Rodda’s point, saying:
‘With the rapidly changing environment and the continued outbreak of COVID-19 the market is now fully pricing in a 25bp cut at tomorrow's RBA meeting.’
Some are now even calling a 50 basis point cut during tomorrow’s meeting.
Adding one final layer to these predictions, UBS further added that ‘the market is now pricing in some probability of QE.’
ANZ, CBA, Westpac and NAB share prices: rate cut chances climb
Though Australia’s big four banks have shrugged off some of the market drama in the last month; they, like the rest of the market couldn’t avoid last week’s brutal sell-off.
In the last five sessions: ANZ dropped 7.6%, CBA sank 7%, Westpac slumped 7% and NAB slid 7.48%.
And now, with the market fully pricing in a rate cut at tomorrow’s RBA meeting, UBS has placed all of the big four bank’s ratings and price targets ‘under review.’
Besides a perspective change though, UBS notes that a rate cut would place additional pressure on the big four’s net interest margins (NIMs).
On that front, UBS posits that ‘given the emergency nature of any rate cuts we believe the banks will be under pressure to pass through the vast majority of the cuts to borrowers […] and accelerate the effective date (we see no reason these cuts cannot be passed through within 1-2 weeks).’
Besides that, and positively at least for borrowers, the investment bank unsurprisingly argues that it expects the housing market would respond positively to any rate cuts.
Ultimately, beyond a hit to margins, UBS remains sceptical of the banks from a valuation perspective, ‘noting that absolute valuations remain elevated (1.6x Book) and banks are highly leveraged to interest rates and economic activity.’
UBS currently rates CBA a Sell, ANZ Neutral, NAB a Sell and Westpac Neutral.
Where do you stand: are the banks currently under or overvalued? You can trade any of the big four – both LONG and SHORT – through IG’s world-class trading platform now.
To buy (long) or sell (short) the Commonwealth Bank with CFDs, for example, follow these easy steps:
- Create an IG Trading Account or log in to your existing account
- Enter ‘CBA’ or 'Commonwealth Bank of Australia' in the search bar and select it
- Choose your position size
- Click on ‘buy’ or ‘sell’ in the deal ticket
- Confirm the trade
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Act on share opportunities today
Go long or short on thousands of international stocks with spread bets and CFDs.
- Get full exposure for a comparatively small deposit
- Trade on spreads from just 0.1%
- Get greater order book visibility with direct market access
See opportunity on a stock?
Try a risk-free trade in your demo account, and see whether you’re on to something.
- Log in to your demo
- Take your position
- See whether your hunch pays off
See opportunity on a stock?
Don’t miss your chance – upgrade to a live account to take advantage.
- Trade a huge range of popular stocks
- Analyse and deal seamlessly on fast, intuitive charts
- See and react to breaking news in-platform
See opportunity on a stock?
Don’t miss your chance. Log in to take advantage while conditions prevail.
Live prices on most popular markets
- Equities
- Indices
- Forex
- Commodities
Prices above are subject to our website terms and agreements. Prices are indicative only. All share prices are delayed by at least 15 minutes.
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
