Markets Live: Wesfarmers hit by downgrade

Here's an interesting chart to mull before we close the blog.

Thanks for reading and posting comments - we'll be back tomorrow from 9am.

Shares see-sawed throughout the session before finishing in the black, after soft Chinese manufacturing data clashed with solid local retail sales growth.

Investors bought up utilities and healthcare stocks, while Wesfarmers weighed on consumer staples and a dip in the oil price saw energy names sold off. 

The benchmark S&P/ASX 200 index and the broader All Ordinaries Index each finishing up 0.2 per cent to 5738.1 points and 5772.5 points respectively. 

"There's nothing really strong giving investors conviction at the moment," said James Gerrish, senior investment adviser at Shaw & Partners. 

"But investors are likely to keep watching the iron ore price; that will definitely influence sentiment in the near term."

A slide in the iron ore spot price to an eight-month low of $US57.02 weighed on the resource giants; BHP Billiton and Rio Tinto were off 0.7 per cent and 1.7 per cent respectively. Fortescue Metals was off 3.7 per cent.

Dalian iron ore futures were down 3.8 per cent at 422 yuan ($US62) in late afternoon trade, pointing to a further drop in the spot price.

There was mixed buying in the big four banks, though they all ultimately closed down, with Westpac's 0.7 per cent fall leading the way.

Wesfarmers shares slumped 3.1 per cent to $41.37 after Morgan Stanley downgraded the stock, warning the conglomerate's retail businesses are more exposed to Amazon than category killers JB Hi-Fi and Super Retail Group.

Despite the gloom surrounding the retail sector thanks to disappointing consumer spending figures, a surprise uptick in retail sales saw the likes of JB Hi-Fi finish up 0.4 per cent while Myer jumped 2.3 per cent.

Major investors have put US industry on notice that climate change matters, even as reports emerged that President Donald Trump plans to withdraw the US from the Paris accord to fight global warming.

A number of large institutional fund firms including BlackRock, the world's largest asset manager, supported a shareholder resolution calling on ExxonMobil to share more information about how new technologies and climate change regulations could impact the business of the world's largest publicly traded oil company. The proposal won the support of 62.3 per cent of votes cast.

The victory, on such a wide margin, was hailed by climate activists as a turning point in their decades-long campaign to get oil and gas companies to communicate how they would adapt to a low-carbon economy.

With big investors now seeing climate change as a major risk, activists said US corporations will have to be more transparent about the impact of a warming planet even if the United States withdraws from the 2015 Paris climate accord, as Trump promised during his presidential campaign.

"Economic forces are outrunning any other considerations," said Anne Simpson, investment director for sustainability at the California Public Employees' Retirement System, one of the sponsors of the resolution.

She credited big investors in Exxon for the change, since at least some of them switched their votes after last year when a similar measure won just 38 per cent support.

"We have seen a sea change in their viewpoint," she said. Many top investors now consider their votes on shareholder proposals "on merit, rather than considering it a test of loyalty to management," she said.

Among Exxon's top investors, Vanguard Group and BlackRock opposed last year's call for climate change reporting. A spokeswoman for Vanguard, which has about 7 per cent of Exxon's shares, declined to comment on its voting this year.

A person familiar with the matter said funds run by BlackRock, which holds about 6 per cent of Exxon shares, voted in favour of the climate resolution.

The investment firms' approach reflects a new interest in climate matters among their own investors, who have stuffed money into so-called "green" mutual funds and other vehicles that use environmental factors in their stockpicking.

Cocoa prices have soared amid signs of tighter supplies in Ivory Coast, the world's top grower, raising prospects that chocolate costs will climb.

July futures jumped as much as 6.8 per cent, the most ever for the contract. Farmers in West Africa are already locking in more forward sales for next year's crop than traders were expecting, a sign that supplies from the current harvest are beginning to ebb.

The outlook for tighter supplies marks a shift for the market that's been suffering from a global surplus. The overhang pushed prices down 32 per cent over the past 12 months, helping to lower some retail costs for chocolate.

The treats may not stay cheap for long, or at least that's what hedge funds are signalling.

Money managers have backed away from their bearish cocoa bets for three straight weeks, US government data show.

On ICE Futures US, cocoa for July delivery added 6.6 per cent to settle at $US2037 a metric ton on Tuesday in New York. Aggregate trading was about 70 per cent higher than the 100-day average for the time of day, data compiled by Bloomberg show. Prices are rebounding after reaching their lowest levels in almost 10 years in April.

In a particularly gloomy view of the economy, NAB is predicting the GDP shrunk in the first quarter and even sees a - slight - chance of a technical recession.

If NAB is right, it would be the second contraction in three quarters, following the strong growth of 1.1 per cent in Q4 2016 and decline of 0.5 per cent in Q3 of 2016. 

The year-ended rate of growth would slow to 1.3 per cent y/y, the weakest rate since the third quarter of 2009, during the GFC, the bank forecasts.

Most economists are still predicting decent growth for next week's GDP numbers, with a recent Bloomberg survey pointing to a 0.6 per cent rise in first-quarter GDP.

"While some of the contraction has undoubtedly been driven by the weather and other one-offs (as in Q3 last year), the question for next week will be whether the slowdown includes signal as well as noise, and implies a more fundamental economic slowdown," NAB chief economist Alan Oster writes in a note to clients.

Oster is particularly worried about the slowdown in household consumption, which comes amid poor wages and household income growth.

"Should this continue, it is unlikely that forecasts of 3 per cent and more growth from Treasury and the RBA will be met in the near term, particularly when LNG exports start to flatten off from 2018 (although it will support growth outcomes for the remainder of 2017)," he says.

"The fall in dwelling construction this quarter suggests some risk that the dwelling construction cycle has peaked a little earlier than expected, although weather is also a likely factor and it's more likely to suggest a more elongated cycle."

NAB's forecasts assume some further (modest) growth in 2017 before peaking in 2018. 

Oster warns there is the small possibility of a negative GDP print in the second quarter - which would take Australia into technical recession - given the hit to coal exports from Cyclone Debbie, but he says there should be enough offset from LNG exports and government spending to keep GDP in the black. 

Despite NAB's forecasts being considerably gloomier than the RBA's, Oster expects the central bank to remain on hold.

One of the world's last havens for fund managers is coming under siege.

In Australia's $2.8 trillion fund industry, managers who rely on human judgement to pick investments have so far withstood the global onslaught of passive offerings.

They've done so in part by cutting fees below those in other large markets. The billions flowing in from the superannuation system have helped, too.

It may not be enough. Giants like BlackRock and Vanguard, encouraged by the past years' global shift towards passive investments, are homing in on Australia with commissions active managers can't hope to match. And as beating benchmarks becomes harder, the industry is discovering that super funds' largesse has its limits.

Against that backdrop, the chief investment officer of the $130 billion Future Fund has some advice for managers."They have to confront the new reality," Raphael Arndt said in a speech last month, urging them to take a "long hard look" at themselves. Arndt argued that what the "free kick" from rising asset prices was coming to an end and investors had become too sophisticated to pay a premium for benchmark-tracking returns.

Here's more

New apartment sales in Brisbane have collapsed by more than 70 per cent in a year, according to analysts Urbis' latest market report.

The rapid contraction in the apartment market saw just 302 sales in the March quarter down 37 per cent on the previous quarter and well down from the 1032 sales in the previous corresponding period last year.

The results reflect a range of problems including tighter and more expensive financing for both buyers and developers and taxes on foreign buyers. There are also suggestions of oversupply.

Urbis associate director of property economics and research Paul Riga said that fewer sales were expected with the first quarter of the year traditionally lagging.

"This quarter we saw some survey results which the market didn't anticipate, in addition to others we knew were coming," Riga said.

He said that although sales had dropped away there had also been a reduction in supply.

A few economist reactions to today's surprisingly strong retail sales numbers and so-so capex data:

Retail data overstates household health, says Paul Dales, Capital Economics:

The private capital expenditure survey for the first quarter showed that mining investment is becoming a smaller drag on GDP growth, while the leap in retail sales in April overstates the health of households. There's no escaping the fact that the outlook for business investment remains weak. We estimate that GDP rose by just 0.2% q/q in the first quarter and that it will struggle to rise by 2.0% during this year as a whole.

Citi's Josh Williamson thinks the retail surge is a one-off:

We suspect these rises were partly from stronger Easter related trading. We don't look for a repeat in May though. Mortgage lending restrictions and higher mortgage interest rates point to some pressure on household goods retailing. We also point out that the very strong retail sales growth in QLD could partly be explained by households re-stocking food and some durable items following the floods that affected around 20,000 homes in late March.

Q1 capex but the outlook is better, ANZ's Daniel Gradwell says:

The fall in plant and equipment spending is a particularly soft result, and will weigh on next week's Q1 GDP data. Firms' expectations for 2017-18 suggest that the mining sector has further to fall, while the non-mining investment outlook eased but continues to suggest moderate growth is in store. Converting elevated levels of business conditions and confidence into investment activity remains a challenge.

NAB's Tapas Strickland sees downside risks to Q1 GDP growth:

The non-mining investment outlook for 2017/18 failed to lift further, while flat equipment investment in the quarter presents downside risks to Q1 GDP with the strong likelihood of a flat or slightly negative GDP outcome on June 7. The lack of a lift in the non-mining components of the survey will be discouraging for the RBA, which has been patiently awaiting a lift in non-mining investment intentions in the data.

CBA's Gareth Aird sees some capex rise ahead:

The soft business credit growth of late suggested that non‑mining investment intentions were unlikely to be upgraded in today's capex survey. The NAB Business Survey continues to suggest a lift in investment is forthcoming. But we think the softness in consumer demand is holding investment back. Fortunately there is a decent amount of public capex to come because the outlook for private investment remains weak.  

Pimco has a message for investors: it's time to stop taking the markets for granted.

Investors have become too complacent and monetary, fiscal, trade and geopolitical risks abound, Pimco's Richard Clarida, Andrew Balls and Dan Ivascyn said in a report issued overnight. There's a 70 per cent chance of a recession in the next five years, they said.

"We believe that many market participants today are too relaxed, that medium-term risks are building and that investors should consider using cyclical rallies to build cash to deploy when markets eventually correct - and possibly overshoot - as risks are repriced," the executives said in Pimco's annual "Secular Outlook" for the next three to five years.

Pimco's forecast is being issued as stock markets reach record highs, the US economic recovery enters its ninth year and Donald Trump's election has spurred optimism for pro-business reforms.

"One thing that's happened is all asset classes are 10 or 15 per cent more expensive than they were a year ago," Clarida said. "So a lot of good news is already priced in."

Downside risks for the economic outlook since last year include reduced prospects for China's growth rate, which may slow to 5.5 per cent from the current pace of 6.5 per cent, and the eurozone, which is likely to average 1.25 per cent over next five years, Pimco said.

US growth is likely to continue at 2 per cent. Inflation will likely be 2 per cent on average and the Federal funds rate will be at 2 per cent to 3 per cent, they said.

Of real concern for the global outlook is that policymakers are "driving without a spare tire" because of limited tools - caused by big balance sheets and low- or negative-interest rates - to deal with a recession.

"Policy measures may not be sufficient to counter the next downturn, whenever it materialises," the report said.

NSW will double its foreign investors stamp duty surcharge to 8 per cent as part of a series of tax changes designed to make housing more affordable for Australian residents, according to the AFR.

The annual land tax surcharge on foreign home owners will also increase to 2 per cent from the existing 0.75 per cent.

The NSW government is also poised to widen access to its first-home buyers bonus, offering it to buyers of existing stock rather than just new homes.

NSW Premier Gladys Berejiklian is expected to announce more details after a cabinet meeting today, the AFR reports. NSW hands down its budget on June 20.

Berejiklian made improving housing affordability one of her top priorities when she came to office in January and appointed former Reserve Bank governor Glenn Stevens as an adviser on the package which cabinet is now considering. 

A few reactions (and charts) on Twitter to today's local data:

Aus Apr retail sales +1%mom/3.1%yoy, driven by dept stores,food,cafe. All ok? Could be Easter related noise here. Trend is soft,just 0.1%mom pic.twitter.com/suGiLPwNe8

— Shane Oliver (@ShaneOliverAMP) June 1, 2017

A pleasant surprise from retail trade. Up 1.0% in April, following soft recent activity, to be 3.1% higher over the year #ausbiz pic.twitter.com/lMW9Kz5U78

— Callam Pickering (@CallamPickering) June 1, 2017

NSW retail up just 0.1%. But Qld, up 2.4%, after five consecutive negative months. Must have bought up lots of Qld league jumpers...

— Shane Wright (@swrightwestoz) June 1, 2017

Q1 CAPEX: could be concerning that the recovery in non-mining investment in NSW & Victoria appears to be losing momentum #ausecon #ausbiz pic.twitter.com/gYcwkW0DbN

— Alex Joiner (@IFM_Economist) June 1, 2017

Update - AUDUSD drops half a cent from the highs, dips under 0.7400 for first time since 17 May. GDP on Wed not shaping up well pic.twitter.com/U3TWAFVAqi

— Sean Callow (@seandcallow) June 1, 2017

Capital expenditure is expected to fall 12 per cent in 2016-17 and a further 11 per cent in 2017-18 #ausbiz pic.twitter.com/ufe6t87CoU

— Callam Pickering (@CallamPickering) June 1, 2017

Australian CAPEX intentions for 2018 disappoint - still falling driven by ongoing weakness in mining & manufacturing investment. pic.twitter.com/I4ylvRlA7V

— Robert Rennie (@R0bertRennie) June 1, 2017

Well, the lift in sentiment thanks to some decent local economic data didn't last very long.

Along came some soft Chinese manufacturing numbers and the gains in the Aussie dollar faded as fast as they had accumulated, while shares have slipped back into the red.

The private Caixin survey of purchasing managers in the manufacturing sector fell to 49.6 in May, from 50.3 in April and below expectations of 50.1. It also slipped below the crucial 50 threshold, separating growth from contraction in the sector.

The first contraction in the Caixin index in 11 months comes a day after official data showed a surprise strengthening in the sector.

The Caixin report tends to focus on smaller firms which are not believed to be benefiting as much from a construction boom as large state-owned companies and industries such as steel mills.

The divergence may suggest that much of China's recent economic strength remains strongly dependent on heavy industry and continued government stimulus, with other sectors facing more challenging business conditions.

"China's manufacturing sector has come under greater pressure in May and the economy is clearly on a downward trajectory," Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said in a note accompanying the Caixin survey.

Today's big economic data releases are out and there's no big disappointment for a change.

Retail sales jumped 1 per cent in April, thanks to a 2.4 per cent jump in Queensland, and easily outpacing expectations of a 0.3 per cent overall rise, following March's soggy 0.2 per cent contraction.

#Australia Retail Sales month-on-month at 1% https://t.co/WLlNlIwGAO pic.twitter.com/uOHcQGUKRw

— Trading Economics (@tEconomics) June 1, 2017

And private investment spending actually rose for a change, albeit not quite as much as hoped for.

First-quarter capex increased by 0.3 per cent - economists had tipped 0.5 per cent - following the previous quarter's 1 per cent contraction.

The closely followed estimate for capex in the next financial year was lifted to $85.4 billion. That's up from the previous estimate of $80.6 billion - but still just half of the $166.8 billion invested at the peak of the mining boom in 2012-13.

The Aussie dollar jumped about a quarter of a cent on the data, to the day's high of US74.47¢.

Capital expenditure in the mining sector rose modestly in the March quarter - the first quarterly rise since the June quarter 2014 #ausbiz pic.twitter.com/ys5irKazEb

— Callam Pickering (@CallamPickering) June 1, 2017

China is dishing out a tough lesson to currency traders and strategists alike: don't bet against the yuan.

The currency has jumped to its highest level in seven months offshore, soaring as much as 1.1 per cent yesterday alone, despite analyst forecasts for declines this quarter.

And today, China's central bank set the yuan midpoint at 6.8090 per US dollar, lifting it 543 pips from the previous day's rate to its strongest level since November 10. The appreciation of the daily reference rate, a 0.8 percent move, was its biggest one-day strengthening since January.

Surging interbank rates are squeezing bears by driving up the cost of short positions.

The rally, which broke months of calm against the US dollar, came on the heels of an unwelcome credit-rating downgrade from Moody's. China made its displeasure clear, calling the move "absolutely groundless."

The central bank had already been battling pessimistic traders by repeatedly strengthening the daily fixing, while an opaque change to the setting announced Friday added to the complexity of betting on future movements.

"The Moody's downgrade and a weaker spot rate compared to the fixing could have spurred the authorities to change the fixing mechanism and potentially intervene in the market," said Jason Daw, head of emerging-market currency strategy at Societe Generale.

The onshore yuan gained 0.6 percent to 6.8134 per dollar in Shanghai on Wednesday, after fluctuating in a narrow band around 6.9 for most of this year. The rate in Hong Kong extended its advance since Moody's rating change on May 24 to about 1.8 per cent.

Analysts are scrambling to adjust to the shift. Credit Agricole scrapped a forecast of 7.25 per US dollar that's been in place since December, replacing it on Tuesday with a year-end level of 7.05. ANZ strengthened its end-2017 target to 6.95 from 7.10.

 The Australian dollar is set to decline more than 6 per cent to around the "high 60s" level versus the greenback as the country loses its yield advantage over the US, according to Goldman Sachs Asset Management.

Australia's interest-rate premium to the US will evaporate by the middle of next year as the Federal Reserve continues to tighten policy while the RBA keeps its benchmark at 1.5 per cent, said Philip Moffitt, Asia-Pacific head of fixed income at the investment manager.

The Aussie has declined almost 3 per cent this quarter, underperforming its Group-of-10 peers. It's currently trading at US74.20¢.

"One of the reasons why people buy Aussie dollars is it has been a relatively high yielder," said Moffitt. "That's changing. More exposure to China, no rate movement here and rate convergence with the US suggest the Aussie will go lower."

The extra yield that Australia's 10-year bonds offer over similar-maturity Treasuries has dropped to just 18 basis points, near a 16-year low reached last week.

The last time the gap was consistently that narrow was in 2001, when the Aussie touched its post-float low of US47.76¢. 

But ANZ head of forex research Daniel Been noted that at the time the bursting of the internet bubble had led to a rush out of riskier assets, punishing the Aussie more than other currencies.

"We do not think that the current narrowing in spreads can, in isolation, drive the AUD back below US70¢," Been said in a note to clients yesterday.

"The evolution of global liquidity and the reaction of risk markets will be the key determinant," he said, tipping the Aussie will hold above US70¢.

Still, hedge funds and other large speculators have unwound almost all of their bullish Aussie wagers, slashing them to the lowest since January, US Commodity Futures Trading Commission data show.

Prices of iron ore have tumbled 27 per cent this year as concerns flare over the outlook for burgeoning global supply and a potential slowdown in demand in China, the largest user.

The RBA is hamstrung. While it needs to support a weak jobs market, red-hot housing in Sydney and Melbourne constrains it from deploying its already limited rate ammunition. In the meantime, the Fed is set to raise rates at least two more times this year, Moffitt said.

"It's quite likely that in 12 months Aussie short rates and US short rates could be basically the same level as the Fed tightens and the RBA does nothing," Moffitt said. "That's going to be a hard environment for the Aussie dollar to be strong."

Wesfarmers shares have slumped after Morgan Stanley downgraded the stock, warning the conglomerate's retail businesses are more exposed to Amazon than category killers JB Hi-Fi and Super Retail Group.

The broker predicted Wesfarmers could lose $400 million in earnings to the online behemoth by 2026.

Morgan Stanley's retail team, led by Tom Kierath, says the market has failed to understand the impact of Amazon's arrival in Australia on Wesfarmers' discount department stores, Kmart and Target, which are likely to be harder hit by Amazon's low prices and speedy deliveries than specialist retailers.

While shares in JB Hi-Fi and Super Retail Group have fallen 17 per cent and 26 per cent respectively this year because of the Amazon threat, Wesfarmers shares were up 1.3 per cent before this morning's selloff.

Shares are currently down more than 4 per cent to $40.99.

"We believe that Wesfarmers' department store businesses Kmart and Target are particularly susceptible as Amazon rolls out its first party product and its Prime offer," said Kierath.

While Amazon is yet to release details of its Australian product range, pricing or its Prime offer, the investment bank believes it will be similar to that in other developed countries such as the US, UK and Italy, and that Amazon will generate sales of $12 billion in Australia by 2026.

Morgan Stanley expects a soft launch by the end of 2017, local fulfillment starting during 2018, and the gradual rollout of products starting with physical media, electronics then apparel, with dry groceries, fresh food and auto parts taking longer.

"Based on our estimates for Amazon share gains and incremental margins, we see Wesfarmers losing $400 million in EBIT by 2026 and have lowered our valuations for Kmart, Target and Bunnings," Kierath said.

Morgan Stanley downgraded its rating on Wesfarmers to underweight from equal weight after cutting earnings per share forecasts by 1 per cent in 2017 to 10 per cent in 2020. The investment bank also slashed its share price target to $36 from $41, with a 'bear' case of $30.

The sharemarket is once again struggling for direction in early trade, disguising some bigger moves in individual stocks.

The ASX has started the month flat, trading at 5724.3 as gains in utilities and healthcare are offset by losses in consumer staples and miners.

 A further slide in oil prices underpinned concerns about valuations and the global outlook, traders said.

The biggest drag on the benchmark index comes from Wesfarmers, which has plunged 3.1 per cent following a downgrade by Morgan Stanley.

The big miners are also on the back foot after falls in major commodity prices overnight, which have pulled BHP down 1.1 per cent, Rio 1.7 per cent and Fortescue 3.4 per cent.

The big banks are all trading slightly lower, while energy stocks are also under pressure.

Rates-sensitive utilities and healthcare stocks are doing better, following a dip in global bond yields overnight.

Transurban is continuing its rebound, rising 1.3 per cent and Sydney Airport is up 1.2 per cent. 

Industrials are also mostly higher, led by a 2.8 per cent rise in Amcor and a 1.7 per cent gain in Brambles.

House prices have fallen in Sydney and Melbourne but experts warn it is too early to call a housing downturn. 

Over the month of May, Sydney house prices fell 1.3 per cent and Melbourne's prices dropped 1.7 per cent, according to Corelogic's latest Hedonic Home Value Index. 

Hobart's prices also fell, by 4.8 per cent, but Brisbane prices were largely flat. All up, national house prices fell 1.1 per cent, driven mainly by the declines in Sydney and Melbourne, Corelogic said. 

But more than a month's data was required to establish a fundamental shift towards a cooling, especially given past market performances in late 2015 and 2016, when prices dipped but rebounded much higher following a cash rate cut, experts said.  

"I wouldn't be surprised if things bounce back," Corelogic head of research Tim Lawless said. 

"When a market moves through a inflection point, there wil be some up's and down's. The trend is showing a slowing down, but the jury is still out on whether the market is moving through a peak."

IG strategist Chris Weston is hoping that a new month will breathe new life into financial markets:

We open the page on the month of June and I for one hope we can break this malaise in markets, with either an upside break or at least a reasonable pullback in global equities to attract new money and fresh life into the markets.

There will be a reasonable amount of event risk to work through, not just with UK elections (8 June), with the ramifications of that event seemingly contained to UK assets, but key central bank meetings from the European Central Bank (also 8 June) and Federal Reserve (14 June).

Locally, we get Q1 GDP (7 June) and that in itself will get a fair bit of attention and while we get a major contribution to that data point today with Q1 CAPEX, there are calls for the quarter to yield very subdued activity.

Of course we will keep a focus on all things Trump too, and his approval rating given the USD's correlation with that and there has been some focus, not just on Trump reportedly making his decision to pull out of the Paris climate accord (Source: Axios), but there have been numerous reports that former FBI Director James Comey will testify next week, as early as Thursday.

Either way, the stage has been set for Asia on the first day of the month is to start on a drab, yet somewhat negative start. We see oil price trading heavy, yet, once again buying support has kicked into the 17 May lows of $US48.35. This level clearly needs to hold and so far it is, and buyers have stepped in thanks to a huge 8.7 and 1.7 million draw respectively in the API private inventory report. In the short-term much will now hinge on tonight's (01:00 aest) Department of Energy weekly inventory report.

We are also staring at real weakness in the bulk commodities too, with spot iron ore closing 2.5% lower at $57.02, while iron ore, steel and coking coal futures closed 3.2%, 2.4% and 2.9% lower respectively. Iron ore futures look like a short sellers dream right now and the technical set-up looks about as bearish as you will see.

It's amazing to see BHP's American Depository Receipt only down 0.9%, although if you focus on Vale's US-listing (as a read through for the lines of AGO and FMG etc) it closed down 4.5%.

Copper and gold seem like good places to be invested today, if in the commodity space.

Here's more

ANZ says its core equity tier one capital ratio will take a hit of 26 basis points, after the banking regulator completed a review of its risk weighting system.

But with ANZ in a strong capital position after asset sales, the bank says this will not require any additional capital management action.

Risk weightings are models that determine how much capital banks must set aside when lending, and there is a global move to make these weightings less generous to the largest lenders such as the big four.

ANZ said APRA had finished its review of ANZ's model, and it would be using a risk weight of slightly over 28.5 per cent for its Australian home loan book. That effectively means ANZ can assume that when it lends out $100 to a home loan buyer, only $28.50 is at risk.

This is separate from APRA's looming decision on what exactly is meant by "unquestionably strong," an official target for the banks set by the Financial System Inquiry, which could require banks to raise yet more capital.