Budget Impact on Investors and Bank Shares

Commonwealth Bank shares faced their largest one-day loss on record, plummeting over 10% as investors reacted to recent budget changes. These changes included alterations to capital gains tax and negative gearing, which are expected to impact demand for investor loans significantly.

The Australian Bureau of Statistics reported a 3% decline in investor loans during the March quarter, alongside a 4.3% drop in home loans for owner-occupiers. First home buyers are also facing challenges, with average loan sizes increasing to over $614,000.

Despite the drop in shares, Commonwealth Bank reported a 4% rise in third-quarter cash profit, although this was below market expectations. Rising costs and increased AI spending contributed to the bank's struggles, alongside a need to bolster bad debt buffers.

Economic forecasts from the budget predict inflation will ease from a peak of 5% to 2.5% in the coming years. However, wage growth has slowed, with the wage price index decreasing from 3.4% to 3.3%, falling below the current inflation rate of 4.6%.

Concerns about the economy slowing further could hinder normal wage growth, especially if inflation remains elevated. The Reserve Bank of Australia anticipates two more interest rate hikes to manage inflation, which has implications for the Australian dollar.

The budget's tax changes have also negatively impacted property stocks, while record copper prices have benefited mining companies. Supply chain issues linked to the Middle East conflict are affecting various industries, including food production.