Key ASX bank stocks, including the Australian big 4 have continued to deflate over the past days, as the RBA continues to apply pressure to interest rates in a bid to get ahold of inflationary concerns that are causing many a global central bank problems.
RBA Interest Rate Hike Adds Pressure To ASX Bank Stocks
Just this week, the RBA (Reserve Bank of Australia) made its’ largest interest rate hike in more than 20 years, as inflationary pressures become too large to ignore. The 50 basis point increase (read official note here) whilst being the largest hike, is not expected to be the last of the year, with the expectation of 3% rates by the end of the year still showing more rate pressure to come.
At the same time we have the Australian housing market bucking a 20 month positive trend of growth, as the cost of living increases begin to rear their head. This is a global fundamental issue, but one which is playing out locally, with ASX bank stocks being pulled into the conversation.
Big 4 ASX Banking Stocks Not Immune
The knock on effect of these events is now being felt throughout the Australian banking stocks arena, with the ‘big 4’ certainly not immune to the downward pressure. All of the big 4 ASX bank stocks find themselves more than 10% down from YTD highs, with some feeling the heat more than others.
- Commonwealth Bank (ASX:CBA) had entered June on a mark of $106 but now finds itself some 10%+ to the downside under $95 on Thursday 9th.
- National Australia Bank (ASX:NAB) hit a recent high on 21st April at $33.60, before beginning the decent to what is now $28.25, north of 15% to the downside.
- Westpac Banking Corp (ASX:WBC) hit its’ year to date high of $24.65 in Mid May, but also sits down more than 10% at a level of $21.17, not quite at a YTD low.
- ANZ Banking Group (ASX:ANZ) started the year off stronger than most, pushing levels of $28.75 in mid January, before sitting today at a YTD low of $23.35, close to 20% off the top.
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What is to come for the Australian housing market and ASX bank stocks?
In an environment of rising interest rates, and increasing inflation, the pressure on households is applied on multiple fronts. You have the increase in rates hitting those home loans that are on unfixed rates, amplifying the cost of living that is being felt from inflationary pressures on consumer staples, and discretionary goods alike.
This type of scenario is one where housing likely comes further pressure as rates continue to rise, before finding a level of stability somewhere along that road. Depending on how quickly inflationary pressures abate, this could play out over quite differing timelines.
Often in an environment of higher interest rates, banks and ASX bank stocks would be one of those segments that would benefit, as deposits increase, and lending becomes more profitable. With a recession potentially on the horizon, this presents a different picture of the wider economic outlook however, and having just begun to emerge from a global pandemic, markets are already a little out of sync with historic levels.
So where do we go from here? I for one will be taking a watching brief, as geopolitical events and wider global issues take center stage and lead the way. Government bonds, and other more stable assets may well be the place to be during times of wider uncertainty; but as always, speak to your financial professional first. Research and analyse your own position, and depending on your timeline, don’t make any rash decisions that you may come to regret later… cycles are called cycles because they come back around.