Global Markets Overview – 10/29/13

Upward momentum for the ASX

The ASX is now up 5.81% in the last 14 days and October looks like it will be the third best month of the year, and well ahead of the average monthly rise in 2013 of 1.3%.

It has registered the highest read in five and a half years, and stocks are now reaching record highs.

These record highs illustrate perfectly where the hot money is flowing; yesterday saw record all-time highs for Westpac, CBA, ANZ, Bank of Queensland, Iress, TPG telecom and Dominos Pizza. NAB hit a six-year high while Macquarie continues to rocket up to three and a half year highs as investment revenue has investors returning to Australia's only investment bank.

This data suggests the hot money is still flowing into the banks and technology companies with niche product offerings, and with the release of ANZ's numbers it's easy to see why.

First take of the ANZ numbers

If the market was looking to be delighted by the bank's results, ANZ has certainly started bank week with a bang. The first take of the numbers look to be positive for the market.

Full year FY13 cash profit came in at $6.498 billion versus a street consensus of $6.41 billion which is a 0.7% beat and a record print - it is also an 11% beat on last fiscal year's numbers. Statutory net profit came in at $6.2 billion which is also an 11% beat on last year, with return on equity jumping up 20 basis points to 15.3% and earnings per share up 9% to $2.38 (which was also ahead of consensus).

Net interest margin (NIM) in the second half was weaker than the first-half number of 2.25%. The 2H NIM came in at 2.20%, which was in line with consensus for a full year figure of 2.22%. This still sees ANZ with the largest margins of the big four (assuming NAB and WBC hold the line on their current NIM from the first half of the year).

The line in the results that will really delight retail investors is the dividend line. Final dividend of $0.91 is well ahead of the consensus number of $0.86 which comes in at the top end of guidance. The final payout ratio is just shy of 70%, but comments from ANZ's CEO Mike Smith will make investors even more supportive of ANZ in the future.

"The board believes that a full year dividend payout ratio of between 65% and 70% of cash profit is sustainable in the medium term,"

The retail investor has been lapping up dividend growth for the past 24 months and the numbers from ANZ should sustain that thirst, and the comment above suggests it's here to stay.

What I see as back up to the payout statement above is the growth coming out key business divisions.

The Australian division saw profit growing by 11%, the struggling international and institutional banking division saw profits jumping 15%, New Zealand was up 29% and Global Wealth a whopping 36%. If sustainability was to be questioned it looks like ANZ has covered these questions with tangible action.

I see this result as a strong one and I would not be surprised to see the market jumping on board with the initial take; however I am wary of the investment banks which will look for every possible hole. Most have an underweight call on the big four, and they will find areas of the results they don't like and target them as reasons to be wary. Watch for momentum to wain on the release of their reports on the numbers over the coming 48 hours.

Ahead of the Australian open

Today we see RBA Governor Glenn Stevens addressing the 5^th annual Australian and New Zealand Investment Conference at 9:30 AEDST. Word on the twitter-sphere is that he is not taking questions after his speech. This will therefore make the speech a non-event, as it will be very structured, with almost no possibility for the market to draw inferences. The effect on the AUD will now be mitigated.

The markets overnight were tepid; Europe closed lower after exploding out of the gates while the US markets were mixed as they waited for the Apple numbers. The numbers saw sporadic post market trading; up 3.6% on initial reactions before plummeting to -5% after more in depth reading. The Apple read will influence US futures and have impacted the opening calls for Australia.

Therefore, ahead of the open we are calling the ASX 200 down two points to 5439 (-0.04%). Having broken through my call that the market is heading to the 61.8% retracement level of the 2007 high to 2009 low of 5426, it will need to consolidate at current levels to see bulls continue their rampage in the market.

BHP's ADR is suggesting the stock could contract slightly today, down 18 cents to $37.67 (-0.48%) as commodities ease overnight. However, trade will be dominated by movements in the banks and expectations from NAB, MQG and WBC and thoughts around the ANZ results.

IG provides round-the-clock CFD trading on currencies, indices and commodities. The levels quoted in this email are the latest tradeable price for each market. The net change for each market is referenced from the corresponding tradeable level at yesterday's close of the ASX. These levels are specifically tailored for the Australian trader and take into account the 24hr nature of global markets.

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