Rate cut drives stocks to five month high
The Australian sharemarket closed at its highest point five months, as investors cheered the Reserve Bank’s decision to cut the official cash rate.
The benchmark S&P/ASX200 rose 44.4 points, or 1 per cent, to 4433.0, its highest close since May 2. The broader All Ordinaries gained 43.6 points, or 1 per cent, to 4451.9.
The RBA cut interest rates by 25 basis points, taking the official cash rate to a three-year low of 3.25 per cent.
While stocks bounced on the decision, the Australian dollar fell 0.6 per cent to $US1.0295, its lowest since September 7, before inching back above $US1.03.Advertisement
More cuts seen
‘‘It was going to be cut eventually this year, it was just a matter of was it going to be this month or the next,’’ said Commsec market analyst Steven Daghlian.
The performance of the global economy in the coming months will underpin any further action from the RBA, but Mr Daghlian said the central bank had left scope for further cuts.
‘‘Over the next three months there was going to be at least one cut. Over the next 12 months, the market is expecting about three cuts of 25 basis points.
“A lot is going to depend on what we see offshore over the next couple of month – if things worsen in Europe, if the US isn’t improving, if economic data out of China is still remaining subdued and disappointing,” said Mr Daglian.
“Then at least the Reserve Bank has scope to move on rates, a lot of the other major economies around the world don’t have that luxury, with rates close to zero in a lot of those economies.
Retailers lead gains
Consumer discretionary shares led the gains – buoyed by prospects of extra money in consumers’ pockets – jumping 1.4 per cent, as did gold miners. Materials and energy also had strong showings, both up 1.3 per cent, Telecommunications rose 1 per cent and financials pushed up 0.9 per cent.
Retail stocks performed well today, posting most of their gains after the RBA decision. JB Hi-Fi finished up 3.3 per cent to $9.38 and Harvey Norman added 1 per cent to $1.94. Department store Myer jumped 3.5 per cent to $1.78 and rival David Jones rose 0.8 per cent to $2.52.
Mr Daghlian said the jump in retail stocks was directly linked to the RBA’s rate cut.
“When the RBA does cut rates, the logic goes, mortgage holders would have more money in their pocket left over because if banks pass on rates cuts, or at least part of it, they’d have a few extra dollars, [and] they’re more likely to go out there and spend money,’’ said Mr Daghlian.
Miner Rio Tinto jumped 1.2 per cent, to $53.98, while rival BHP gained 1.3 per cent to $33.54.
Fortescue on the rise
Fortescue rose 1.4 per cent to $3.55 after the High Court ruled that its chairman, Andrew Forrest, did not mislead investors back in 2004.
The Australian Securities and Investments Commission had alleged Fortescue and its founder, Mr Forrest, misled investors over documents signed in 2004, which the company said were legally-binding agreements with Chinese companies to build a railway, port and mine works.
Gold miner Newcrest added 0.9 per cent, to finish at $29.31.
Among the banks, NAB led the charge, rising 1 per cent to $25.81, Westpac added 0.9 per cent to $25.16, ANZ gained 0.8 per cent, to $24.99 and CBA finish up 0.3 per cent to $56.07.