The banks again had mortgage holders living in hope that rates would drop in line with the RBA’s 0.25 per cent cut this week. But in a situation that is becoming all too normal, the banks stood their ground until mounting government and public pressure finally drove them to follow suit.

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Although they did match the cut later in the week, it came with a cloud of doubt over whether they would allow future rate cuts to follow, citing increasing global economic uncertainty as the reason. Critics see the recent stand-off as evidence that the Big Four are sticking together, and this puts a question mark on banks as consumers want to know whether Australia really has a competitive banking industry or whether such a premise is an illusion.

For the past 12 months Wayne Swan has been instrumental in supporting smaller banks so as to improve the playing field, however, we need to see evidence that this is working. Just because ME Bank stepped up to cut rates almost immediately does not mean the government can take credit, remember that ME Bank have a history of supporting Australians. As the saying goes, ‘the proof is always in the pudding’ and in light of the financial results of the Big Four this year, where is the justification for not passing on the cuts?

What do we expect in the market? 

Following the 288 point rise on the Australian share market last week we saw the buying continue into Monday’s trade, lifting the market by a further 45 points to a high of 4391 points. Given the strength of the rise probability suggests that further rises are on the cards however, in the current market conditions it is important to be prepared in the event the opposite happens.

I see no reason to make rash decisions in response to the falls of the past few days as the market is still holding above support between 4100 and 4200 points. What we are seeing is to some extent a reflection of the cautious stance being taken by the institutions awaiting the outcome of the European Union Summit. Traders see the current move as part of the normal ebbs and flows of the market, in other words, they know in order to get the gains you have to be prepared for somefalls along the way. For now we are still bullish on the market for the next few weeks.

 by Dale Gillham | Chief Analyst | Wealth Within |  SME Contributor