Global equities were mixed over the past week with US equities boosted by news that the US had agreed to reform the NAFTA agreement with Canada and Mexico.
Domestically equities edged lower over the week despite higher commodity prices and a positive reaction to the Royal Commission Interim Report. This suggests the market perceived the report as better than expected despite no formal recommendations being provided. Unsurprisingly the RBA left the cash rate unchanged at 1.5pc for the 24th consecutive meeting.
We are still left with the conclusion that the RBA sees itself making slow progress towards a rate rise, unless something were to occur which significantly alters their forecasts.
While there are no hints in this week’s statement that any move in rates is particularly close, it would seem reasonable to argue that we are somewhat closer to a rate increase than was the case a few months ago on the basis of developments in economic growth and lower unemployment.
Westpac (WBC) flagged to the market that it expects cash earnings for their upcoming FY18 results will be negatively impacted by a around $235 million (post-tax) provision. The cost relates to customer refunds related to advice fees where services were not provided, advice fees where services were provided but could not be verified and refunds for financial advice considered inadequate.
This was only related to the Group’s salaried financial planners and the review will continue into FY19 and will include their aligned financial planners.
The market’s reaction was muted as attention shifted to the Royal Commission Interim Report that led to a strong rally in the banks. Expect further detail around the above provision when management is expected to report FY18 results on the November 5.
We remain cautious around the banks as earnings growth pressure persists, stemming from a slowing property market, increased wholesale funding costs, increased compliance costs and the potential for further fall out post the Royal Commission.
- This article does not take into account the investment objectives, financial situation or particular needs of any particular person. Accordingly, before acting on any advice contained in this article, you should assess whether it is appropriate in light of your own financial circumstances or contact your financial adviser. Christopher Hindmarsh is an adviser at JBWere Limited. JBWere Limited is owned by National Australia Bank Limited.
