I find the Commonwealth Bank of Australia (ASX: CBA) share price a fascinating one to watch.
With a market capitalisation of $126.1 billion, this banking behemoth is one of the largest listed companies in Australia. That means when the CBA share price moves, often the S&P/ASX 200 Index (ASX: XJO) does too.
On top of that, CommBank is Australia's largest bank. It's no secret that a huge proportion of the Aussie economy can be attributed to the Financials and Resources sectors. And I do tend to think that CommBank's share price movements can act as a barometer of sorts for the wider ASX.
So, for all of its intriguing attributes, why am I specifically watching this ASX bank share in July?
Why I'm watching the CBA share price right now
I'm not really one for technical analysis, but watching CommBank's trading patterns makes for interesting viewing. Having hit a new 52-week low of $53.44 in the March bear market, the CBA share price has hovered around the $68-$72 per share mark for the last month. I think that's pretty indicative of where the market is at right now. In fact, I wouldn't be surprised to see the S&P/ASX 200 Index move largely sideways until the August earnings season.
There are plenty of headwinds facing the economy and many were there even before the coronavirus pandemic smashed global economic growth. However, despite all the economic gloom, markets have rebounded strongly. This has largely been due to record-low interest rates, strong government stimulus and expansionary monetary policy.
On the surface, all of these measures should be good for the CBA share price. However, this economic quarter (i.e. July to September) could be one that makes or breaks the ASX bank share.
For one, the heavy government stimulus is likely to be rolled back in September or October. Once these safety nets are removed, we should get a real idea of where the economy is headed for the remainder of 2020 and beyond. Having already hit a recession in the June quarter, I'm bracing for more bad economic news. That could be in the form of even higher unemployment, rising corporate insolvencies and/or higher default rates.
We should also see CommBank release its quarterly Basel III Pillar 3 disclosure report at the end of September. That document should give an indication of the bank's key regulatory metrics such as Common Equity Tier 1 (CET1) ratio and other capital adequacy measures.
Foolish takeaway
If it was all doom and gloom right now, investors wouldn't still be buying in at the current CBA share price. It's easy to be negative but there is still some pretty strong fundamental support for ASX shares.
One big factor is the implicit government support that underpins the Aussie banking system. It's unlikely that we'd see a major credit crisis from the big four given they are 'too big to fail' and the government would invariably step in to help if necessary. There are also the extensive efforts of central banks around the world to prop up the economy. Significant quantitative easing has boosted liquidity in capital markets to keep key lending mechanisms in play right now.
If we see a gradual re-opening of state economies in Australia, this could also boost corporate earnings in 2020. Higher earnings means better debt serviceability which is good news for Aussie bank earnings (and balance sheets).
All in all, I think the CBA share price is interestingly poised right now. For me, the September quarter looms large in determining whether or not to buy into the Aussie bank in 2020.
