the asx closes 0 3 per cent higher led by banks and smaller miners 943222015

Media speculation mounts in favour of a rate cut at Tuesday’s RBA meeting, the Aussie plunges

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By :  ,  Financial Analyst

The Australian share market rebounded after a brief fall in opening trade on Thursday and maintained its upward trend through the session. Barring a brief correction around noon, the market saw sustained buying interest from investors, particularly in banking and beaten down mining stocks, and ended near its best levels of the day. This was the sixth straight rising session for the ASX.

Indices and sectors

The benchmark S&P/ASX 200 moved up 16.7 points, or 0.3 per cent, to 5,569.5, while the All Ordinaries index gained 15.6 per cent, or 0.3 per cent, to 5,532.2.

Amongst sectors, the best gainers were utilities (+0.78 per cent), financials (+0.63 per cent), materials (+0.34 per cent) and consumer discretionary (+0.33 per cent). The biggest losing sectors were energy (-1.65 per cent), information technology (-1.34 per cent) and telecommunications services (-0.33 per cent)


Banks were again a firm feature in yesterday’s trading. Commonwealth Bank of Australia (ASX:CBA) outshone amongst the big banks, gaining 1.21 per cent to AU$88.76, while Australia and New Zealand Banking Group (ASX:ANZ) was up 0.95 per cent to AU$32.95, and National Australia Bank Ltd (ASX:NAB) put on 0.85 per cent to AU$35.50. However, Westpac Banking Corp (ASX:WBC) was a laggard, finishing 0.12 per cent lower at AU$34.64, on news that the bank would sell its operations in five Pacific Island Nations for AU$125 million.

“There’s a belief that interest rates will fall and with that belief, people will continue to move to hold companies that provide strong, sustainable dividends – Telstra, the banks, Wesfarmers, Woolworths,” said Alistair McCorquodale, senior client adviser at Morgans, as quoted by The Sydney Morning Herald.

Iron ore miner Fortescue Metals Group Ltd (ASX:FMG) raced to the top of the S&P/ASX 200 gainers list, rising 9.31 per cent to AU$2.23 after reporting higher-than-expected production of iron ore during the fourth quarter, and a lower cost of production due to operational efficiencies, cheaper oil and the weak Australian dollar. Atlas Iron Ltd (ASX:AGO) gained 6.25 per cent to AU$0.170, and BC Iron Ltd (ASX:BCI) too jumped 3.23 per cent to AU$0.480. Amongst the larger miners BHP Billiton managed a small gain of 0.03 per cent to AU$28.95 and rival Rio Tinto Ltd (ASX:RIO) was up 0.12 per cent AU$57.05.

Copper miner OZ Minerals Ltd (ASX:OZL) was up 6.93 per cent to AU$3.86 and also figured among the top gainers on the S&P/ASX 200. Gold producer Beadell Resources Ltd (ASX:BDR) was one of the worst losers on the S&P/ASX 200, falling 7.35 per cent to AU$0.315 as gold prices corrected. Rare earth miner Lynas Corporation Ltd (ASX:LYC) was the biggest loser on the S&P/ASX 200, slumping 10 per cent to AU$0.045.

The oil sector was the worst performer during the day, and amongst the larger companies, Woodside Petroleum Ltd (ASX:WPL) slipped 1.78 per cent to AU$33.74 on speculation that the company could lose billions of dollars on a gas supply contract entered with China in 2002 that contains no clause for price escalation in line with the prevailing market prices. Santos Ltd (ASX:STO) fared worse, falling 2.15 per cent to AU$7.73, and Oil Search Ltd (ASX:OSH) was down 1.16 per cent to AU$7.70.

Economic news, currency and insight

The media speculation on whether the RBA will deliver a rate cut at its meeting next week reached fever pitch yesterday after an article in the Herald Sun said the bank is almost certain to cut its rate at its meeting next Tuesday. “What is absolutely certain is that the key language in RBA Governor Glenn Stevens’s post-meeting statement will change,” said Terry McRann, a prominent RBA watcher. “That would obviously be the case if he’s announcing a 25-point cut, but it would change to ‘signalling a future cut’ even in the now unlikely case that rate was left unchanged.”

The Australian dollar crumpled below the 78 US cents mark in trading in the wee hours of Friday morning as the global currency wars expanded, according to The Sydney Morning Herald. At 08:58 today (AEDT) the local currency was trading at 77.63 US cents, down from Thursday’s close of 78.75 US cents. The currency has therefore hit a new five and half year low, as rate cut expectations continue to gather momentum and the US dollar moves from strength to strength.

“The Australian dollar’s fall over the past 24 hours has been nothing short of stunning,” said Bank of New Zealand currency strategist Raiko Shareef. “It has shed the bounce following Wednesday’s better-than-expected inflation report, which took it above 80.00 – the weight of expectation around next week’s RBA meeting continues to mount, such that a nasty snapback beckons should the RBA fails to adjust its language toward an easing bias.”

According to data from the Australian Bureau of Statistics, export prices remained unchanged in the December quarter while import prices rose 0.9 per cent, said The Australian. On a year-on-year basis however, export prices are down 9.1 per cent, while import prices are 0.3 per cent higher. The statistics indicate deteriorating terms of trade that could adversely affect company profits and national income, and bolster the case for a rate cut to spark economic growth.

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