Bank funding cost rocket incinerates RBA jawbone

Advertisement

As noted recently, Australian financial regulators have embarked on an intensive jawboning campaign in support of lowering bank funding costs. It does not appear to be having the desired effect given funding costs are again on the charge with CBA CDS moving another couple of percent higher yesterday to 119.5bps:

serge

US and European baking system proxies, Wells Fargo and Credit Agricole, also rose by a one point apiece so that has again boosted the Australian Ponzi Index back towards its highs:

dghj
Advertisement

From BS, the news for banks is not good:

Short sellers are continuing to swirl around the big four Australian banks while international investors and institutions are pulling out of the stocks, according to Deutsche Bank analysts, who say a recent recovery in the lenders’ share prices has nothing to do with short covering.

Despite the major banks’ share prices surging around 13 per cent in March so far, against a broader market gain of around 6 per cent, ASIC data suggests the push higher has not been driven by short covering.

“Short positions have actually risen over the period,” Deutsche analyst Andrew Triggs said. The average short position in the big four banks is at 2 per cent, up from 1.4 per cent three months ago, and more than double the 0.8 per cent holding this time last year.

“While our discussions with investors indicate some believe that covering of shorts has been a driver of the rally, the data indicates that short positions in the majors have continued to increase,” Mr Triggs said.

And why not? As the Mining GFC goes so too will the bank’s spreads and equity prices.

Advertisement
About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.