It’s day one of Melbourne’s stage four restrictions.
Things are pretty quiet around here. All you hear are the sounds of helicopters flying above, and the occasional car passing by.
Victoria makes up 23% of Australia’s GDP, and these new restrictions are another blow for Australia’s economy.
Following the announcement, the banks were mostly in the red today on the ASX.
At time of writing, ANZ Bank Group Ltd [ASX:ANZ] shares are down by 3.65%. Both Westpac Banking Corp [ASX:WBC] and Commonwealth Bank of Australia [ASX:CBA] have seen their shares decrease by 3.10% and 1.99% respectively.
The National Australia Bank Ltd [ASX:NAB] share price has seen the biggest drop with by 3.68%.
What’s dragging banks down?
One factor is confidence.
When confidence is low, consumers will spend less. This is quite a big deal when close to 60% of GDP is made up by consumer spending. The pandemic is freezing economic activity.
Another factor linked to confidence is property. When house prices increase, it creates a sort of wealth effect and people spend more.
Sydney and Melbourne, who together make up about 60% of the property market, saw their property prices drop in July. CoreLogic reported that residential prices in Sydney fell 0.9% and 1.2% for Melbourne during the month.
And it’s very likely that property prices will keep falling.
Much of the growth in property we have seen has come from investors and high immigration.
Now immigration has completely stopped. There are no tourists, no backpackers, no students. We are also seeing some migration from cities to regional areas.
Rental prices are also decreasing and more properties in cities are coming onto the market, which is not good news for investors.
And then there is unemployment. The unemployment rate has jumped to 7.4% in June.
What could happen next?
Continued and extended lockdowns don’t bode well for businesses, and that includes banks. The concern is that Australian banks are very exposed to housing, with residential mortgages making up over 60% of their total loans.
Low interest rates and JobKeeper are providing some relief…but what happens when that support ends? In this scenario, keeping unemployment low is key.
Are our banks safe? The Rum Rebellion’s editor Vern Gowdie tackles that question and more in his free report ‘How do I protect my savings and are banks safe?’.
You can access it here.