australian stocks moved higher on thursday on rate cut expectations 1259862015

Australian shares traded bullish on Thursday, the last day of a holiday shortened week. The prospect of yet another interest rate cut by the Reserve Bank of Australia loomed large on the market, and investors accordingly added to their investments in equities, more particularly the larger banks. The fall in the iron ore price, and its impact on the latest figures of Australia’s trade deficit, which rose 25 per cent, failed to dampen their enthusiasm.

In market action, stocks represented by the S&P/ASX 200 moved up sharply after the open, and thereafter kept up a trend of rising lows, closing near the best level of the day of 5,907.40.

Indices and sectors

The benchmark S&P/ASX 200 on Thursday rose 37.8 points, or 0.6 per cent, and closed at 5,898.6 in pre-holiday trading, while the broader All Ordinaries index was up 36.8 points, or 0.6 per cent, at 5,869.7.

The main gaining sectors were consumer discretionary (+1.10 per cent), financials (+0.97 per cent), energy (+0.81 per cent) and information technology (+0.70 per cent). There were only two losing sectors, namely consumer staples (-0.29 per cent) and telecommunication services (-0.07 per cent).

Stocks

Two gold miners figured in the top five gainers on the S&P/ASX 200 on Thursday. Northern Star Resources Ltd (ASX:NST) was up 8.29 per cent to AU$2.35, and Evolution Mining Ltd (ASX:EVN) shot up 6.71 per cent to AU$0.875.  On the other hand, Newcrest Mining Limited (ASX:NCM) was up 4.87 per cent to AU$13.78.

Other mining stocks ruled mixed. BHP Billiton Limited (ASX:BHP) fell 0.40 per cent to AU$30.22, Rio Tinto Limited (ASX:RIO) lost more down 1.12 per cent to AU$55.78 and Fortescue Metals Group Limited (ASX:FMG) plunged 3.96 per cent to AU$1.82. Atlas Iron Limited (ASX:AGO) lost heavily falling 7.69 per cent to close at AU$0.120, while Mount Gibson Iron Limited (ASX:MGX) was flat at AU$0.210. BC Iron Limited (ASX:BCI) plunged 4.17 per cent to AU$0.345.

Iron ore prices closed last week at a new all-time low of US$46.70 per tonne, raising concerns about the impact of the decline in prices on the fortunes of mining companies as well as on the country’s trade balance. “So far there's no sign of much pick-up in non-mining-related investment in a time when the slump in mining investment is really intensifying,” said Dr. Shane Oliver, chief economist at AMP Capital Investors, as quoted by ABC. "And at the same time we're seeing an accelerating blow to national income in the collapse in the iron ore price. So that is obviously a direct drag on the economy because each $1 fall in the iron ore price knocks out AU$300 million of Federal Government revenues."

The major banks all ended higher. Commonwealth Bank of Australia (ASX:CBA) jumped 1.16 per cent to AU$94.40, Westpac Banking Corp (ASX:WBC) was up 0.69 per cent to AU$39.45, Australia and New Zealand Banking Group (ASX:ANZ) gained 0.60 per cent to AU$36.67 and National Australia Bank Ltd. (ASX:NAB) rose 0.68 per cent to AU$38.69.

In line with the recent uptrend in crude oil, energy stocks closed higher on Thursday. Woodside Petroleum Limited (ASX:WPL) was up 0.80 per cent to AU$34.15, Origin Energy Ltd (ASX:ORG) jumped 1.16 per cent to AU$11.30, Oil Search Limited (ASX:OSH) gained 1.28 per cent to AU$7.10 and Santos Ltd (ASX:STO) was up 0.29 per cent to AU$6.95.

The major retailers all closed in the red. Woolworths Limited (ASX:WOW) slipped 0.72 per cent to AU$28.99, Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, was down 0.09 per cent to AU$43.51, Myer Holdings Ltd (ASX:MYR) fell 2.26 per cent to AU$1.30 and Caltex Australia Limited (ASX:CTX) was down 0.80 per cent to AU$34.85.

Telstra Corporation Ltd (ASX:TLS) fell 0.16 per cent to AU$6.32. However, iiNet Limited (ASX:IIN) was up 2.53 per cent to AU$8.93 and TPG Telecom Ltd (ASX:TPM) gained 0.85 per cent to AU$9.44.

Economic news, currency and insight

There are growing expectations that the Reserve Bank of Australia will resort to another interest rate cut at its meeting today. Money markets are reflecting 78 per cent odds in favour of the cash rate going down to a new all-time record low of 2 per cent, regardless that prices in the real estate market, particularly Sydney, are on a tear, according to ABC.

AMP Capital Investors chief economist Shane Oliver is of the view that more pressing factors such as the crash in the iron ore prices as well as the RBA’s fixation with lowering the Australian dollar may take precedence over the booming housing market. "If you look around Australia, while Sydney prices are up around 14 per cent over the last year, in other cities those annual gains range from minus 0.8 per cent in Darwin to 5.6 per cent in Melbourne,” he observed. "So it's only Sydney that is now experiencing property strength. The rest of Australia, I think, is quite soft."

The Australian dollar benefited from US dollar weakness following disappointing US employment data that raised question marks on the ability of the US Fed to raise interest rates. Despite expectations of an interest rate cut at today’s RBA meeting, the local currency was trading higher at 76.01 US cents at 06:30 this morning (AEDT), up from 75.93 US cents on Thursday, according to The Australian.

On Wall Street, stocks closed higher Monday as investors thought the Federal Reserve might now hold off on raising interest rates following the dismal employment statistics last week. "The weekend allowed market participants to see the positive side of the weak Friday (jobs) number, which is that rates probably aren't going to rise very quickly," said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey, as quoted by Reuters. The Dow Jones Industrial Average rose 117.61 points, or 0.66 percent, to 17,880.85, the S&P 500 gained 13.66 points, or 0.66 percent, to 2,080.62 and the Nasdaq Composite added 30.38 points, or 0.62 percent, to 4,917.32.