K62 Finance

AUD subdued on Friday after tumultuous week. AFEX Monday update – October 15, 2018

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It was a mixed week for the Australian dollar with turmoil in equity markets weighing heavily mid-week, but a recovery ensued enabling the AUD to settle back above 0.7100 at the close on Friday.

All appeared ok in the markets early in the week, but on Wednesday in the US investors quickly shifted into overdrive and ditched their equity holdings.  The appeal of risk-free bond yields at 7-year highs appeared the key catalyst.  With equities down over 3% in the session, currency traders flocked to the safe havens of the Japanese yen, Swiss franc and US dollar – leaving the risk-currencies like the AUD completely out of favour as traders rushed to the exits.

The Australian dollar fell from 0.7130 at 4.30pm on Wednesday to 0.7043 at 7.30am on Thursday, a 1.2% swing.  But as quickly as the sell-off happened, by 11.30pm Thursday night it had fully recovered and spent the remainder of the week grinding sideways to close at 0.7110.

The AUD also lost ground against the EUR.  For a while there on Thursday AUD/EUR touched its lowest level since August 2015 at 0.6112, a far cry from the 0.7300 level where it traded in February 2017.  It managed to bounce higher off the lows to close the week out at 0.6151.

It was a similar story for the AUD/GBP, where on Thursday it traded at the lowest level since June 2016 at 0.5335.  However it also managed a recovery, closing the week at 0.5404.

The week ahead is quite busy on the economic front.  In the US, retail sales lead the way on Monday night, followed by the Fed meeting minutes on Thursday night.  Throughout the week there are also a host of speeches by Fed members.  Locally we have the RBA publishing their meeting minutes on Tuesday, followed by employment data on Thursday.  In the UK, highlights include employment data on Tuesday, CPI on Wednesday and retail sales on Thursday.  In addition, the Brexit negotiations will be a key factor in how the sterling trades this week and US treasuries and the US/China trade tiff will be key determinants on how the USD trades.

Given the plethora of economic data and political events this week, no doubt we are in for another volatile week ahead in the currency markets.  Expected weekly trade ranges:

  • AUD/USD:  0.7040 – 0.7215.  Neutral bias
  • AUD/EUR:  0.6110 – 0.6180.  Neutral bias
  • AUD/GBP:  0.5330 – 0.5520.  Bullish bias

I’m expecting the sterling to be the key trade this week.  Given Brexit negotiations appear to have missed the deadline for the EU’s October meeting, there could be some negativity towards the GBP as a result.  This could help AUD/GBP recover in the short-term.

James King
Head of FX Dealing. AFEX
www.afex.com

CBA abusing the law fighting customers: Labor

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Original article by James Eyers
The Australian Financial Review – Page: 19 : 12-Oct-18

Commonwealth Bank of Australia CEO Matt Comyn appeared before the House of Representatives economics committee on 11 October. He admitted that the misconduct exposed by the financial services royal commission had hurt some customers, and said CBA is changing its organisational culture in the wake of the scandals that have rocked the bank. Labor MP Clare O’Neil criticised CBA’s approach to dealing with customers’ complaints, including the use of aggressive litigation tactics.

CORPORATES
COMMONWEALTH BANK OF AUSTRALIA – ASX CBA, AUSTRALIA. HOUSE OF REPRESENTATIVES STANDING COMMITTEE ON ECONOMICS, AUSTRALIAN LABOR PARTY, AUSTRALIA. ROYAL COMMISSION INTO MISCONDUCT IN THE BANKING, SUPERANNUATION AND FINANCIAL SERVICES INDUSTRY, LIBERAL PARTY OF AUSTRALIA

CBA faces first suit over low returns

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Original article by Michael Roddan
The Australian – Page: 21 : 11-Oct-18

The Commonwealth Bank of Australia has indicated that it will "vigorously" defend a class action launched by Slater & Gordon. The law firm contents that wealth manager Colonial First State had invested its superannuation clients’ money in CBA-owned funds that had very low returns, when it could have invested the money in higher-returning funds controlled by CBA or other banks. Other banks and financial institutions have also been targeted by class action lawyers in the wake of the financial services royal commission.

CORPORATES
COMMONWEALTH BANK OF AUSTRALIA – ASX CBA, COLONIAL FIRST STATE GROUP LIMITED, SLATER AND GORDON LIMITED – ASX SGH, AUSTRALIA. ROYAL COMMISSION INTO MISCONDUCT IN THE BANKING, SUPERANNUATION AND FINANCIAL SERVICES INDUSTRY, AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION, AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY, COMMONWEALTH FINANCIAL PLANNING LIMITED, BW FINANCIAL ADVICE, NATIONAL AUSTRALIA BANK LIMITED – ASX NAB, MLC LIMITED, AMP LIMITED – ASX AMP, MAURICE BLACKBURN PTY LTD

Bank CEOs to face off with fired-up MPs

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Original article by James Frost
The Australian Financial Review – Page: 17 : 11-Oct-18

Liberal MP Tim Wilson, who chairs federal parliament’s standing committee on economics, says bank CEOs can expect to face a grilling when they front the committee in coming days. He says that amongst other things, the committee will be demanding information on how the major banks intend to address governance concerns and compensate customers for misconduct. Commonwealth Bank CEO Matt Comyn and Westpac CEO Brian Hartzer will appear before the committee on 11 October.

CORPORATES
AUSTRALIA. HOUSE OF REPRESENTATIVES STANDING COMMITTEE ON ECONOMICS, LIBERAL PARTY OF AUSTRALIA, COMMONWEALTH BANK OF AUSTRALIA – ASX CBA, WESTPAC BANKING CORPORATION – ASX WBC, AUSTRALIA. ROYAL COMMISSION INTO MISCONDUCT IN THE BANKING, SUPERANNUATION AND FINANCIAL SERVICES INDUSTRY, AMP LIMITED – ASX AMP, NATIONAL AUSTRALIA BANK LIMITED – ASX NAB, AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION, AUSTRALIAN LABOR PARTY, AUSTRALIAN BANKING ASSOCIATION, AUSTRALIAN COMPETITION AND CONSUMER COMMISSION, AUSTRALIAN GREENS, AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – ASX ANZ

Banks to end charging dead, conflicted fees

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Original article by James Frost
The Australian Financial Review – Page: 13 & 17 : 10-Oct-18

The Australian Banking Association has proposed a number of changes to the banking code of practice in response to the misconduct exposed by the financial services royal commission. Amongst other things, banks have agreed to take action to ensure that they do not continue to charge fees after a customer has died, while the banks will ensure that they do not charge fees for services that are not provided or are not needed by a customer. The ABA and its members will also lobby for the complete abolition of trailing commissions for financial advice.

CORPORATES
AUSTRALIAN BANKING ASSOCIATION, AUSTRALIA. ROYAL COMMISSION INTO MISCONDUCT IN THE BANKING, SUPERANNUATION AND FINANCIAL SERVICES INDUSTRY, AMP LIMITED – ASX AMP, AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – ASX ANZ, COMMONWEALTH BANK OF AUSTRALIA – ASX CBA, NATIONAL AUSTRALIA BANK LIMITED – ASX NAB, WESTPAC BANKING CORPORATION – ASX WBC, MACQUARIE PRIVATE WEALTH MANAGEMENT PTY LTD, CLSA AUSTRALIA PTY LTD, COMMONWEALTH FINANCIAL PLANNING LIMITED, COUNT FINANCIAL LIMITED, FINANCIAL WISDOM LIMITED, COLONIAL FIRST STATE GLOBAL ASSET MANAGEMENT

Banks tumble over advice compo fears

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Original article by Michael Roddan
The Australian – Page: 17 & 20 : 9-Oct-18

The ANZ Bank has advised that its full-year accounts for 2017-18 will include charges totalling $739m in the second half. Amongst other things, ANZ has advised of $374m in charges to compensate customers who paid fees for services they had not received, while its costs associated with the financial services royal commission are expected to total $55m. The major banks will shortly come under scrutiny by the House of Representatives economics committee for the first time since the inquiry began.

CORPORATES
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – ASX ANZ, AUSTRALIA. ROYAL COMMISSION INTO MISCONDUCT IN THE BANKING, SUPERANNUATION AND FINANCIAL SERVICES INDUSTRY, AUSTRALIA. HOUSE OF REPRESENTATIVES STANDING COMMITTEE ON ECONOMICS, WESTPAC BANKING CORPORATION – ASX WBC, AMP LIMITED – ASX AMP, AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION, COMMONWEALTH BANK OF AUSTRALIA – ASX CBA, NATIONAL AUSTRALIA BANK LIMITED – ASX NAB, UBS HOLDINGS PTY LTD, LIBERAL PARTY OF AUSTRALIA, STANDARD AND POOR’S FINANCIAL SERVICES LLC, MLC LIMITED, MAURICE BLACKBURN PTY LTD, SLATER AND GORDON LIMITED – ASX SGH

Banks urged to slash branches to offset rising costs

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Original article by Richard Gluyas
The Australian – Page: 19 : 8-Oct-18

Morgan Stanley argues that Australia’s major banks could generate significant savings by closing bank branches and placing greater emphasis on mobile banking. This is one of four scenarios outlined in a new report; however, Morgan Stanley notes that banks are unlikely to significantly reduce the cost of their networks in the next year, given that the sector is under scrutiny at present. Morgan Stanley adds that the major banks could potentially generate large savings by reviewing their multibrand strategies.

CORPORATES
MORGAN STANLEY AUSTRALIA LIMITED, WESTPAC BANKING CORPORATION – ASX WBC, COMMONWEALTH BANK OF AUSTRALIA – ASX CBA, AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – ASX ANZ

CBA the most popular bank with wealthiest 10% of Australians

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Original article by Roy Morgan
Market Research Update – Page: Online : 8-Oct-18

New research from Roy Morgan shows that the CBA is the clear leader when it comes to banks used by the wealthiest 10% (top decile) of the population, with more than a third (36.7%) being customers. This segment is particularly significant as identified in the "Roy Morgan Wealth Report", which shows that the top decile accounts for 48.3% of Australian households’ net wealth. The big four dominate when it comes to the banks used by the wealthiest 10% of Australians. Individuals in this important segment generally deal with more than one bank, but the banks with the highest penetration are CBA (36.7%), Westpac (25.7%), ANZ (23.7%) and NAB (22.5%). A number of smaller banks have much higher customer penetration in this segment compared to what they have in the total population, including St George (11.3%), ING (7.6%), Macquarie (4.9%) and Citibank (3.9%). These are the latest results from Roy Morgan’s Single Source survey, which is based on in-depth personal interviews conducted face-to-face with over 50,000 Australians per annum in their own homes, including over 5,000 of the wealthiest 10%.

CORPORATES
ROY MORGAN LIMITED, COMMONWEALTH BANK OF AUSTRALIA – ASX CBA, WESTPAC BANKING CORPORATION – ASX WBC, AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – ASX ANZ, NATIONAL AUSTRALIA BANK LIMITED – ASX NAB, ST GEORGE BANK LIMITED, ING BANK (AUSTRALIA) LIMITED, MACQUARIE GROUP LIMITED – ASX MQG, CITIBANK LIMITED

Bank cross-selling less successful than widely believed

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Original article by Roy Morgan
Market Research Update – Page: Online : 8-Oct-18

Australian banks’ over-reliance on cross-selling to boost revenue may have been over-stated, according to the latest "share of wallet" data published in the Roy Morgan Banking & Finance Industry Currency Report. The report found that most major banks’ "share of customer wallet" has declined over the past four years, with National Australia Bank Group slipping 3.7 percentage points to 29.5%, CBA losing 2.6 percentage points to sit at 31%, ANZ Group sliding 1.1 percentage points to 27.7% and Westpac down 0.9 percentage points to 28.3%. While there is no doubt the Royal Commission has exposed serious problems in the selling practices of banks, the share of wallet trend highlights increased competition across a number of product categories. The Banking and Finance Industry Currency Report is compiled using data from more than 250,000 in-depth face-to-face, in-home interviews.

CORPORATES
ROY MORGAN LIMITED, NATIONAL AUSTRALIA BANK LIMITED – ASX NAB, COMMONWEALTH BANK OF AUSTRALIA – ASX CBA, AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – ASX ANZ, WESTPAC BANKING CORPORATION – ASX WBC

Stoked US pushes rates up, $A down

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Original article by John Kehoe, Jacob Greber, Mark Ludlow
The Australian Financial Review – Page: 1 & 10 : 5-Oct-18

The Australian dollar fell to a 2.5 year low of $US0.7078 on 4 October, with analysts tipping it could soon fall to below $US0.70 on the back of rising US interest rates. A combination of higher oil prices and a falling Australian dollar could push petrol prices up above $2 per litre, although a weaker dollar could help to make Australian exports more competitive and lead to reduced demand for more expensive imports. Fitch Solutions Macro Research suggested a rise in oil prices could trigger inflation, which could force the Reserve Bank to lift interest rates sooner than expected.

CORPORATES
FITCH AUSTRALIA PTY LTD, RESERVE BANK OF AUSTRALIA, GRANT SAMUEL AND ASSOCIATES PTY LTD, OUTLOOK ECONOMICS, HSBC AUSTRALIA HOLDINGS PTY LTD