Are Australian Financials Ready to Rally?

• Financials perform well on Monday.
• Interest rates continue to suggest loan/bond spread favors profitability.
• Growth in Asia/Pacific could be a potential driver for Australian multinational banks.

The Monday session was positive overall for the ASX 200, but what was particularly interesting is the fact that it seems as if the financial sector is starting to build a case for a bullish run. While most people follow the idea of commodities driving most of the Australian stock exchange, the reality is that there is a strong and healthy financial sector that people will be paying close attention to.

The 10 year yield in Australia reached the 4.379% level late in trading on Monday but was as high as 4.4% early during the Australian session. This suggests that perhaps the financial spread between the bond and loan should continue to help financials collect plenty of profits going forward as long as the bond market stays relatively stable.

National Australia Bank Limited

During the early session on Monday, the NAB stock gapped above the 50-Day EMA, and closed at the very highs of the session, at AU$34.46, just below the crucial AU$35 level. This is an area that previously has been rather significant resistance, and it looks as if the market is continuing to act like a “beach ball being held under water”, meaning that if we can break above the AU$35 level, we may see quite a bit of momentum enter the market. Underneath, it looks as if the AU$33 level is offering rather stringent support. At this point, it does look like the pressure is starting to build, as the stock closed with a strong 1.62% showing.

Chart of NAB taken from TradingView on 4 June 2024

Westpac Banking Corporation

Westpac had a strong session on Monday as well, gaining 2.5%, as the market closed at the AU$26.63 level, and much like its counterpart NAB, it closed well above the 50-Day EMA. At this point, the next major resistance level should be the AU$27 level, followed by the AU$28 level, an area that the market fell hard from previously. Support at this point in time looks to be AU$25 which of course is a large, round, psychologically significant figure.

Chart of WBC taken from TradingView on 4 June 2024

ANZ Group Holdings

ANZ Group Holdings also had a strong session, gaining 1.17% during the session, closing at the AU$28.58 level on Monday. At this point, we are also above the 50-Day EMA in this market and are currently threatening the gap lower that we had seen from a couple of weeks ago. If the market can clear the AU$29 level, then it opens up the possibility of a move toward the AU$30 level, which of course is a large, round, psychologically significant figure. Underneath, the AU$27.50 level offers short-term support from historical data.

Chart of ANZ taken from TradingView on 4 June 2024

While there were obviously several winners in Australia during the trading session on Monday that were not financials, the reality is that the financial sector seems to have been the best performer overall, and it does look like traders are starting to look at the possibility of expansion in the ASIA/PAC region as a potential driver of growth in this sector. While most of the strength had seemingly been in commodities as of late, the fact that the financial sector is starting to perk up as well is a potential sign of health in Australia.

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