rate cut expectations stoke a 0 4 per cent rally on the asx friday 1192922015

The small downward blip in the opening hour of trade on Friday was the market’s red herring for investors. The S&P/ASX 200 really showed its hand thereafter when it powered, in a series of rising highs and rising lows, to the day’s high of 5,979.80, but closed just a whisker below that.

Nevertheless, investors could look forward to the weekend savouring the gains from an index that ended at its highest level in seven years, and was shaping up to reach the 6,000 level, as rate cut expectations again took centre stage.

“The market rallied after the currency looked a bit weaker and following RBA comments about future rate cuts,” Macquarie Equities division director Lucinda Chan said, noting that the cheaper Australian dollar helped improve the operating margins and funding gaps at domestic banks, as per the Business Spectator. “If interest rates are going to keep coming down, at the end of the day the only place to get return on your money is in equities,” she added.

Indices and sectors

The benchmark S&P/ASX 200 on Friday rose 24.7 points, or 0.4 per cent, and closed at 5,975.5, while the broader All Ordinaries index was up 23.8 points, or 0.4 per cent, at 5,936.5.

The significant gaining sectors were information technology (+1.18 per cent), real estate investment trusts (+0.80 per cent), consumer discretionary (+0.71 per cent), energy (+0.61 per cent) and consumer staples (+0.53 per cent). Telecommunication services (-0.49 per cent) was the only losing sector for the day.

Stocks

The banks did well and Commonwealth Bank of Australia (ASX:CBA) shot up 0.74 per cent to an all-time high of AU$96.32. Westpac Banking Corp (ASX:WBC) gained 0.05 per cent to AU$39.73, Australia and New Zealand Banking Group (ASX:ANZ) was up 0.44 per cent to AU$36.79 and National Australia Bank Ltd. (ASX:NAB) gained 0.38 per cent to AU$39.39.

Miners did their bit for the rally. BHP Billiton Limited (ASX:BHP) was up 0.29 per cent to AU$30.67, Rio Tinto Limited (ASX:RIO) jumped 0.50 per cent to AU$58.59, and Fortescue Metals Group Limited (ASX:FMG) was up 0.50 per cent to AU$2.00. Atlas Iron Limited (ASX:AGO) closed flat at AU$0.140, Mount Gibson Iron Limited (ASX:MGX) plunged 2.27 per cent to AU$0.215 and BC Iron Limited (ASX:BCI) fell 1.23 per cent to AU$0.400.

Energy stocks were mostly higher, notwithstanding the volatility in global crude oil prices. Woodside Petroleum Limited (ASX:WPL) shot up 1.10 per cent to AU$35.70, Origin Energy Ltd (ASX:ORG) fell 0.09 per cent to AU$11.59, Oil Search Limited (ASX:OSH) was up 0.66 per cent to AU$7.62 and Santos Ltd (ASX:STO) gained a solid 2.38 per cent to AU$7.32.

Amongst retailers, Woolworths Limited (ASX:WOW) gained 0.34 per cent to AU$29.11, Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, was up 0.30 per cent to AU$44.18, while Myer Holdings Ltd (ASX:MYR) continued its bearish run and slid 2.18 per cent to AU$1.35. Caltex Australia Limited (ASX:CTX) was up 1.20 per cent to AU$37.86.

Qantas Airways Limited (ASX:QAN) shot up 1.99 per cent to AU$3.08 while Virgin Australia Holdings Ltd (ASX:VAH) fell 0.97 per cent to AU$0.510.

Telstra Corporation Ltd (ASX:TLS) led the telecommunications sector to a loss, falling 0.62 per cent to AU$6.37. iiNet Limited (ASX:IIN) was up 0.67 per cent while TPG Telecom Ltd (ASX:TPM) fell 0.45 per cent to AU$8.80. iiNet chairman Michael Smith has hurriedly convened a call with investors on Monday to clarify his position regarding certain investors who have alleged that the board sold the company too cheaply in its AU$1.4 billion deal with TPG Telecom, said The Sydney Morning Herald. The company has also scheduled meetings with individual investors in the coming week.

According to a report in the Australian Financial Review, Discovery Communications Inc. (NASDAQ:DISCA) has closed its offer to buy, along with Foxtel, the assets of Ten Network Holdings Limited (ASX:TEN). Discovery was said to have rejected the offer by Ten of a 14.99 per cent stake and a seat on its board.

Economic news, currency and insight

Greg Medcraft, chairman of the Australian Securities and Investments Commission, said at a parliamentary hearing on Friday that Australia had become a haven for online foreign exchange brokers who could offer clients extremely high leverage of up to 500 times by obtaining a local license. "We've discussed this more globally, and we are being picked off as a jurisdiction that allows very high leverage, 500 to 1," Mr Medcraft said, according to The Sydney Morning Herald. "It is an issue that's been discussed recently at the Council of Financial Regulators."

Reserve Bank of Australia Governor Glenn Stevens said in a speech in Melbourne that the RBA was open to considering interest-rate cuts even though it might be wary of their benefits. "I don't think that the current level of interest rates is really the main thing holding back the economy. I think anybody who's credit worthy can get credit very cheaply at present, banks are willing to lend," he said to ABC's 'The Business’ presenter Ticky Fullerton. "The fact that it isn't interest rates holding things back isn't the same thing as saying that there's no benefit from lowering them, there might be."

At 06:30 this morning, the Australian dollar was trading at 77.83 US cents up from 76.85 US cents on Friday, says the Australian. The local currency gained from the weakness in the US dollar after Federal Reserve Bank of Chicago President Charles Evans said in a research paper that interest rates should continue near zero levels given the substantial uncertainty about inflation and employment.

The Australian stock market is likely to open higher today given that the April ASX SPI200 Index (AP) Futures was up 33 points at 6,015.0 at 03:38 Saturday (AEDT).