Westpac has put on 33.2% this year and, like its peers that reported last week, needs to come out with good numbers today if it is to justify the valuation premium it currently holds. Cash earnings for the bank were expected to print $7.05 billion, so the $7.097 billion print looks OK. The dividend at 88c is in-line with consensus and up from 84c in the previous corresponding period, while the bank also announced a special dividend of 10c – again expected. Net interest margins of 2.15% are below the expectations of 2.19% and perhaps will disappoint a few. All-in-all looking at the headline numbers they is nothing to really excite the bulls.
Look out for a pop higher in FMG this morning on what will probably be light volume, given the 2.5% gain on Friday in iron ore. The trend is still intact on FMG, with the miner still above its 21-day moving average, which in itself is pointing higher.
Since making the bearish reversal on October 23, the pair has lost around 3%. It will be an important day for AUD traders with September retail sales (expected to increase 0.4%), Q3 house price index and ANZ job ad’s to be released at 11:30 AEDST. With traders positioning for tomorrow’s Melbourne cup rate decision, a close below 0.9428 this week will be key.
It’s interesting to see that EUR/USD is now below the September 19 FOMC meeting when the Fed held off from tapering. I feel the risk is we see a weaker EUR going into this week’s ECB meeting as traders fully price in a rate cut. The key point in the meeting will be whether Mario Draghi talks about cutting the deposit rate to a negative number. The deposit rate differs from the refinancing rate as it is the rate charge to banks for holding funds with the central bank. A cut to the deposit rate would see the EUR under serious pressure, although the chance of cutting at this meeting is zero, however talk that the ECB are looking at this rate could be enough to see the pair heading towards 1.30.