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$19.7 billion is the expected total amount of dividends expected to be paid out by the Big Four banks in 2021. The mining sector is expected to pay out over $27B in dividends in comparison after record commodity price moves.

Market Movements

Australian Share Market (ASX200) – Down 2.2% last week. The Australian market had a sharp reversal after hitting new highs to close the previous week. A combination of US equity profit taking (see below) and reversals in explosive moves in iron ore prices which had jumped over 10% in the previous week caused equities to take stock.

US Share Market (S&P 500) – Down 1.3% last week. The US market saw its worst week since February and was down over 4% midweek on inflation fears. Inflation as measured by CPI jumped 4.2% from a year earlier in April caused a big selloff before recovering strongly over the last two days with back-to-back rallies.

Portfolio Movements

Commonwealth Bank (CBA. ASX) -Reported booming business lending and Q3 profit of $2.4B resulting in $10B in excess regulatory capital which in turn opens the door later this year for a large special dividend or buyback. CBA said it had lent an extra $3B to businesses in the 3 months to March 31, three times the average of the other banks and 8% higher than the year-earlier period. The recent budget will only increase this demand after extending tax breaks to drive non-mining investments. Deposits rose by $4B in the quarter up 1.4 times against competitors (+13.9% on the year -earlier period) and home lending rose $6.7B marginally ahead of the other banks (+5.3% on the year ago quarter). Both helped CBA release $136M in loan impairments.

Citigroup (C. NYSE) – Higher inflation combined with a period of economic strength and a favourable yield curve is shaping up to be a “Goldilocks” period for the banking sector says Bank of America (BAC) analysts. Modest inflation (over 2%) has helped bank prices higher previously when the right set of macro factors line up as they do now. This was the case in 1991 and 2011, however material inflation like in the 70’s and 80’s and subsequent rapid rate rises is bad for bank stocks. BAC says their top pick for the sector is Citigroup as it undergoes a makeover under its new CEO and cheap valuation compared to peers at 0.87x price to book value. Its $100 price target provides 34% upside.

Microsoft (MSFT. NAS) – Microsoft was labelled the most important software company on the planet last week and will soon have 78% of total revenue coming from recurring sources. This should see mid-teen revenue growth and operating margin expansion over the next 5 years, also driving mid-teen growth for EPS and free cash flow. The latest upgrade from analysts saw a buy rating 25% higher at $300 and 50% higher over 5 years which looks to be conservative given the stats below.
MSFT has over 1.3B devices running Windows 10, over 1.2B users of Microsoft Office and Azure Active Directory, 756M LinkedIn and 100M Xbox Live users fuelling ongoing growth.

The week ahead

Domestically, employment and unemployment figures will be the economic highlight for investors this week, with consumer confidence being a minor release in comparison. US earnings season continues in the U.S and has so far helped to increase confidence as earnings haven’t fallen as much as feared during lockdowns and are also rebounding faster than expected. Minor US economic figures this week but Japan releases GDP and inflation figures and the UK has employment and inflation figures to release.