Morning Note - NAB reports earnings

**27/10/10  -  8.08am  -  by James Gerrish** 

On the market last night the DOW JONES edged +5 points or +0.05% higher to 11169. In London the FTSE 100 fell -44 points or -0.78% to close at 5707. Locally, SPI FUTURES are pricing in a modest fall of -4 points when trading kicks off this morning. 

The USD was marginally higher overnight but so too where commodities. The assets generally have an inverse relationship. As I mentioned yesterday, the USD is really the key in the market at the moment and this is going to be driven by the QE2 program set to be released next week. I continually get asked - where is Gold going? What is my target in Crude or Copper and where should we expect the S&P/ASX 200 by year end? 

From my perspective, what we need to determine is where the USD is headed then these questions will find more definitive answers. At the moment the dollar is seeing some short term support. If it breaks higher, equity markets will fall. If it breaks lower equity markets rise (This is a short term view only). 

NAB Reports....

NAB has reported earnings this morning and in my view it was just OK with nett income of $2.13 billion compared to a loss of $75 million a year earlier.. The only issue here is that market consensus was for nett income of $2.37 billion so it missed expectations on that front. The positves were a sharp reduction in bad debt provisions (-41%), better than expected dividend of 78c (compared to consensus of 76c) and and increased in net interest margins of 9 basis points. This dividend is interesting. This represents a YoY increase of 6% however compare this to Com Banks increase of 27% YoY  and it looks a little light. 

Nett interest margins have been the main issue the banks have been complaining about claiming increased pressure on interest margins could force then to raise rates over and above the RBA cycle. NABs results flies in the face of this however its important to remember that NAB has a higher concentration of business customers and margins have been higher here than in the domestic housing market.  NAB seems however to have missed the boat on the recent housing market surge (ANZ, WBC and CBA have taken better advantage of this) and don't forget NABs exposure in sluggish European markets which CEO Cameron Clyne attributes for fall in revenue (-1.6%). NAB shares are down 9.7% this year. 

ANZ reports earnings tomorrow and I'm expecting a positive result from Mike Smith. The market is expecting a 66% gain in nett income to a record of $2.53 billion in the 6 months to Sep 30. 

Westpac report next Wednesday with the market expecting cash earnings to rise 24% to $2.9 billion. 

CBA reports in a different cycle to other three pillars however will give the market a trading update on November 15.