Why is the CBA, NAB share price under pressure today?
Shares in the major banks have jumped between 20-35% in the last 6 months.
Shares in Australia’s biggest banks are among the biggest losers on the ASX boards on Monday. Commonwealth Bank (ASX: CBA) shares were down 4.7% to $98.80 at the time of writing, while rivals Westpac (ASX: WBC), National Australia Bank (ASX: NAB) and ANZ (ASX: ANZ) were each trading more than 2.5% lower.
Why investors are nervous about the Big Four banks
The US Federal Reserve unsettled investors last week when it signalled a shift to a more hawkish stance. Fed officials now expected to raise interest rates by 0.5 per cent in 2023, as the US economy recovers faster than expected.
The US central bank is also talking about reducing monetary stimulus through its massive government bond-buying program and has downgraded the risk from the pandemic given the progress with vaccinations.
Analysts believe the change in the US Fed’s stance will put pressure on major economies, including Australia, to also rewind their emergency monetary stimulus deployed when the coronavirus pandemic struck and also consider rate hikes.
There was an immediate impact in the US and European stock markets, with the news weighing on sectors that are most sensitive to interest rate changes, such as banks and real estate.
The impact is now flowing through to these sectors in the Australian markets too, with banks among the worst affected sectors on Monday.
That is because the Big Four banks have the largest exposure to the booming housing market, and rising interest rates will dampen demand from home buyers, hurting banks’ earnings.
RBA moves in focus
Indeed, home prices have continued to climb in major cities like Sydney, Melbourne and Brisbane on the back of improving economic conditions. That has spurred lending and allowed the four big banks to reverse nearly $1 billion in bad debt provisions, boosting their half-year profits and dividends.
Australia’s own red hot economic recovery also means the Reserve Bank will have to start lifting its cash rate much earlier than its previous forecast that it would not raise interest rates until 2024.
Westpac chief economist Bill Evans believes the rapid decline in Australia’s unemployment rate over the past few months means both wages and inflation will rise, prompting the RBA to lift the cash rate sooner than expected.
He now expects the first interest rate hike by the first quarter of 2023, followed by two more in the second and fourth quarters during that year.
Considering buying CBA or NAB shares?
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