Mortgage applications at Westpac have tumbled since the federal budget, setting the tone for a weak profit reporting season for the big four banks. The news sent bank shares south, with Westpac closing down six per cent while Commonwealth Bank, National Australia Bank and ANZ all dropped around two per cent.

The banks are four of the five largest companies on the ASX, and their trajectory has a significant bearing on the performance of the ASX. Despite a strong lead in from Wall Street, the local S&P/ASX 200 yesterday closed down 0.3 per cent to 9233 points.

Like all the banks, Westpac relies heavily on mortgage lending to earn profits by paying smaller interest rates on deposits, than they charge on loans.

The bank said since the federal budget in early May, applications from investor borrowers have fallen 26 per cent, while owner occupiers were down 18 per cent.

Listen to today's episode 🎧 

Greed-o-meter

The RBA board is expected to leave interest rates on hold this afternoon - but where do we sit internationally? Australia's official cash rate of 4.35 per cent puts us well above other G20 nations like Japan, Canada and South Korea, but a long, long way below Turkey's 37 per cent rate.

Source: Trading Economics

Fear & Greed Q+A today

On the full-year results for property company REA Group, which owns realestate.com.au - including the broader outlook for the housing market:

 

“Talking to our customers, looking at how things are performing on realestate.com.au, I think a lot of it comes down to where we see the interest rate cycle peaking and how quickly it will peak.

 

I think at the moment the house view here is that we are approaching the top of the cycle now. Our expectations are that prices through ’26 will come off sort of mid-single digit, overall. But it’s a hard one to call at this stage.

 

At the end of the day, houses are selling and people are getting outcomes, and in some cities they’re going better than in others. But overall the market’s still holding together okay.”

News in brief

Prime Minister Anthony Albanese has met with Opposition leader Angus Taylor to negotiate passage of the government’s gambling advertising legislation, the News Bargaining Incentive bill which forces tech giants to pay publishers for content, and to pass an overhaul of the National Disability Insurance Scheme.

Federal Health Minister Mark Butler says efforts are being made to ensure weight-loss drug Ozempic is placed on the Pharmaceutical Benefits Scheme.

The struggling Treasury Wine Estates has cut the value of its US wine business, taking total write-downs at the alcohol group to a massive $1.25 billion. It is the second time in nine months that Treasury has written down its US assets.

More than one million people have been evacuated from their homes in eastern China including Shanghai, as Typhoon Dolphin made landfall yesterday.

The combination of the war in the Middle East and climate change has created a potential new trading route for global shipping through the Arctic. Melting polar ice has made movement easier, and the trip shortens the journey between Europe and Asia by around 20 days.

Fear-o-meter

Betashares Chief Economist David Bassanese

According to the futures markets, there’s zero chance the RBA will raise rates at this week’s policy meeting. This follows the lower-than-expected Q2 CPI result and ongoing reports of the downturn in house prices.

For traders, it would seem to offer a beautiful asymmetric bet: bet on a rate rise and there’s little downside if you’re wrong, and wonderful upside in the remote chance that you’re right.

Of course, it does seem that the RBA can afford to keep rates steady again this month – especially given risks around exactly how far house prices will fall in the current downturn. With underlying inflation still uncomfortably high, however, the RBA will continue to talk tough this week and retain a firm tightening bias.

Forwarded from a friend? Sign up to our daily newsletter