A combination of Hurricanes Harvey and Irma, plus fears about North Korea, the continuing worries about the money laundering charges against the Commonwealth Bank and a downgrade by a leading bank kicked the chocks from under listed financial stocks yesterday.
But news early Thursday morning of a temporary extension of the US government’s debt limit pushed Wall Street higher and will take some of the pressure off our market this morning.
President Trump reached a deal with Republicans and Democrats that will fund the US government until December 15 and provide a short-term increase in the debt ceiling.
The agreement wards off a government shutdown, avoids a debt default and provides Hurricane Harvey-related aid. But if Hurricane Irma hits the US coast (Florida is the most likely landfall at the moment.
The deal will see the problem return in late November, but the news saw the overnight ASX 200 futures market up more than 20 points. Gold prices fell, US bond yields though for securities maturing past December 15 spiked.
Macquarie shares slid 2.3% yesterday, CBA lost 1.2% and Westpac were down 1.1%. NAB shares lost 0.7%, while ANZ slipped 0.5%.
The fall for the CBA took its fall since the August 3 announcement of the Austrac money laundering claims to more than 13.5%, or over $17 billion in market value.
Insurers dropped as fears of grew of extra losses in the huge US market from not only Hurricane Harvey but the approaching Storm named Irma, a category five of 6 hurricane which would make it one of the most powerful to threaten the US for decades.
IAG shares fell 3.9% as it went ex dividend.
Even though Australia is a long way away, our insurers are players to some degree in global markets with reinsurers facing massive losses.
IAG has a major relationship with Warren Buffett’s Berkshire Hathaway reinsurance group which has a 20% quota share deal as well as 3.7% of the insurer’s capital. Berkshire is one of the world’s major reinsurers and a huge player in the US market where the cost of Harvey have already been put at $US180 billion (much of which will have to be met by the US and Texas governments).
The impact of these massive storms on insurers can be seen from Berkshire Hathaway’s admission last month that its reinsurers had lost $US152 million from Cyclone Debbie in Queensland in late March and the associated rains and damage to Queensland rail lines. (Debbie was a much smaller storm compared to Harvey and the threatening Irma).
Suncorp shares fell 2.1% after it was cut to underperform at Macquarie. Analysts at Macquarie downgraded Suncorp to ‘underperform’ from ‘neutral’, citing expected pressures on the Queensland-based insurer’s margins this financial year.
“Underlying margins will take a structural step down" as a result of changes to Suncorp’s reinsurance arrangements, including an alteration which will see them on the hook for a greater proportion of natural hazard claims.
The analysts also have an underperform rating on fellow insurer IAG.
QBE shares dropped shed 2% (its the biggest local reinsurer).
Perpetual also traded without rights to its latest dividend payout and fell 2.5%. Other fund managers such as Platinum Asset Management dropped 4.3% and BT Investment Management shares dropped 2.6%.
