While Australian financial stocks managed to crawl off the mat today, they’ve not enjoyed the best of times recently.
Just have a look at the chart below as evidence.
It’s the daily chart of the ASX 200 financials index going back to the start of this year.
Not only is it down more than 4%, and through this year’s previous low, but it’s also fallen more than 10% from the highs seen earlier this month, marking a technical correction.
“The sector looks in terrible shape at the moment and the trend is firmly lower,” said Chris Weston, chief market strategist said late on Monday.
“This is the biggest correction since Q1 2015. So either I’m short or neutral, but buying on this current set-up and price action looks like a low probability trade.”
Weston says that a flatter Australian yield curve, courtesy of similar declines offshore along with recent weak Australian economic data, is one factor that has probably contributed to the recent selloff.
He also notes that Australian bank credit default swaps (CDS) — the cost to ensure bank debt against possible default — have also pushed higher recently, even if they remain at overall low levels.
That probably reflects increased concern about the outlook for the Australian housing market, something that has risen recently following warnings on household debt levels from several prominent groups, including the RBA.
Recent uncertainty stemming from the federal budget relating to the proposed bank tax, and whether it will impact bank earnings or be passed on to customers, may have also been a factor.
The ASX 200 financials index currently sits up 0.09% at 6,289.8 points.