What’s next for the Commonwealth Bank of Australia (ASX: CBA) share price after hitting positive year-to-date returns?
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The Commonwealth Bank of Australia (ASX: CBA) share price just pushed into positive territory for 2020. The CBA share price started the year just shy of $80 before the March selloff sent it freefalling to $54 per share. This week, it finally pushed over the $80 level following positive coronavirus vaccine updates, reopening borders and encouraging economic data.
At the time of writing, The CBA share price is trading at $83.56, up 0.45%.
Unprecedented strength from big four banks
The big four banks have done much of the heavy lifting for the S&P/ASX 200 Index (ASX: XJO) after running more than 20% since October. New data has revealed that the economic recovery from COVID-19 is gathering pace.
In the context for banks’ earnings, the Australian Banking Association (ABA) has found that the number of loan deferrals has fallen below 300,000 nationwide. This compares to the peak of more than 900,000 loans deferred.
In the case of Commonweath Bank, it experienced a net reduction in total loan deferred facilities of 59% during the month of October. Approximately 52,000 loans remained in deferral as at 31 October, down 75% from the total as at 30 June 2020 (210,000).
Economic turnaround taking place
In the RBA’s opening statement to the House of Representatives Standing Committee on Economics, Governor Philip Lowe said that economic news had been better than expected.
He said that over recent months, the number of people in employment had risen significantly, and the peak in the unemployment rate was now likely to be 7 and 8 per cent, rather than close to 10 per cent.
Retail spending has continued to increase, with consumers adjusting their spending patterns. Business and consumer confidence has lifted significantly, and housing markets have generally proved resilient.
GDP growth ‘solid’
Given these developments, the RBA is now expecting GDP growth to be “solidly positive” in both the September and December quarters. And then, next year, a central scenario for the economy to grow by 5 per cent and a further 4 per cent over 2022.
Back in November, the RBA announced another major policy package that included a reduction in the cash rate target to 0.10 per cent and the introduction of a quantitative bond purchase program. This involved the RBA buying $100 billion of government bonds over the next 6 months.
These measures will support the economy through a number of channels. Lower borrowing costs will free up cash flow and incentivise households and businesses to spend. Lower interest rates will also support asset prices, which boost balance sheets, consumption and investment. The end result is a stronger economy and more jobs.
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Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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