Bank Stocks Spooked by Federal Budget

Blog week ending, 15^th May 2026

Markets:

• Australian banking and real estate stocks were hit hard following the handing down of the Australian Federal Budget, whilst resource stocks went the other way led by BHP reaching an all-time high.
• In local stock news, CSL shares sank 16% to their lowest level in more than decade, after profit downgrades and asset write-offs, with management acknowledging the need to reset expectations.
• Commonwealth Bank shares recorded their largest single-day decline ever (13^th May), tumbling more than 10% after an interim profit miss, rising interest rates, and the impact of new investment tax reforms announced in the Budget.
• Metcash shares climbed after the IGA supplier said it expected to declare an underlying profit of $268 to $270 million, with their CEO stating it was a solid result.
• The S&P 500 closed above 7,500 for the first time ever, Dow reclaimed 50,000 and Nasdaq hit a record high as the AI trade roared back on Cisco’s blowout quarter and Cerebras’ blockbuster IPO.
• Saudi Aramco’s CEO noted around one billion barrels of oil over the past two months have been lost worldwide, warning any recovery is likely to be gradual. Recent survey data showed that OPEC oil output has declined to its lowest level since 2000.
• The Australian dollar strengthened this week trading near a four-year high against the US dollar.

Economy:

• The Australian Federal Government released its 2026-27 Annual Budget announcing the biggest shake up to investor taxes in decades as it seeks to fund further cost of living relief whilst working towards budget repair.
• New house lending in Australia declined in the March quarter, down 3.8% to $103 billion and below economist expectations. The weakness comes amid higher interest rates and was broad across owner occupiers, investors and first home buyers, with the largest declines recorded in NSW and Victoria.
• US annual inflation accelerated to 3.8% in April, the highest since May 2023 and above the 3.3% recorded in March and market forecasts. The increase was driven primarily by rising energy and food prices.
• US producer price inflation rose 1.4% in April lifting annual growth to 6% on the same time last year, the largest annual gain since December 2022.
• US consumer sentiment dropped to a record low in early May, coming in below already weak expectations and April’s reading. The decline reflected growing concern around rising prices, particularly in the current conditions component.
• US private payrolls increased by 123,000 in April, a strong increase and well above expectations of 75,000. This follows an upwardly revised 190,000 increase in March. Hiring was strongest in healthcare, transportation and warehousing, and retail trade.
• Overall, the US economy added 115,000 jobs in April, following an upwardly revised 185,000 increase in March, exceeding forecasts for 62,000. The unemployment rate held steady at 4.3%, with federal employment continuing to decline and some job losses seen in information technology.
• US average hourly earnings for all private sector employees rose by 0.2% in April, matching March’s pace and slightly below estimates. Over the year, earnings have increased by 3.6%, below expectations.
• The Eurozone economy grew 0.1% in the March quarter, missing expectations, with annual growth slowing to 0.8% from 1.3%.
• China’s annual inflation rate increased to 1.2% in April from 1% in the previous month, well exceeding market expectations. Non-food inflation rose whilst transport costs surged amid higher energy prices and supply chain disruptions.
• China’s producer price inflation accelerated 2.8% on the same time last year, the highest level since July 2022 and well above the 1.6% estimates, marking a sharp acceleration from March.
• China’s exports surged more than 14% year-on-year in April, as foreign buyers stockpiled ahead of the Trump-Xi summit this week. This contributed to a widening trade surplus widened of US$84.8 billion for the month.
• India’s annual inflation rate inched higher in April, reaching its highest level in a year, though still coming in well below expectations.

Politics:

• US President Trump landed in Beijing for two days of meetings with President Xi, marking the first US Presidential visit to China in eight years. Discussions are expected to focus on trade, tariffs, Iran, and Taiwan, with a high-profile delegation of major US corporate leaders accompanying the visit.
• Iran is ramping up rail trade with China to offset the impact of US port blockades, with cargo trains now running every three to four days, up from once-a-week services before the conflict.
• President Trump rejected Iran’s latest peace proposal after Tehran launched fresh drone targeting the UAE, Kuwait, and Qatar, raising the risk of reigniting the oil supply shock. US intelligence reports Iran still has operational access to most missile sites along the Strait of Hormuz.
• President Trump also warned the European Union of significantly higher tariffs if a trade deal is not ratified by 4 July, adding further tensions to negotiations.
• UK government bonds came under pressure, with yields rising sharply as political as political uncertainty intensified. More than 70 Labour MPs have called for Prime Minister Kier Starmer to step down, pushing 30-year government bond yields to their highest level since 1998.
• Kevin Warsh was confirmed as the new Federal Reserve Chair, securing Senate approval in a 54-45 vote. He will formally succeed Jerome Powell on 15 May 15, with Powell expected to remain on the board.

Written by Christopher Lioutas
Chairman – Harbourside Investment Management