the rba anti climax costs the australian benchmark stock index 0 4 per cent 1100192015

Australian stocks corrected sharply after the Reserve Bank of Australia belied hopes of a second interest rate cut, on grounds that it was advisable to hold the benchmark cash rate at its record low level after last month’s cut. However, the RBA kept the door open on future rate cuts, saying that further easing may be required in the period ahead.

The magical 6,000 level for the S&P/ASX 200 therefore remained elusive yesterday even on an intra-day basis. The index jumped sharply to the day’s high, as well as a fresh seven-year high of 5,996.90 in the first hour of trade, driven by rate cut expectations and the Nasdaq’s conquest of the 5,000 level overnight. However, a negative trend prevailed thereafter heading into the RBA meeting.

After the RBA’s decision became public, the index plunged sharply to the low of the day of 5,903.20, but rallied thereafter to the day’s close of 5,933.90.

Indices and sectors

The benchmark S&P/ASX 200 fell 25 points, or 0.4 per cent, and closed at 5,933.9, while the broader All Ordinaries index was down 23.4 points, or 0.4 per cent, to 5,902.9.

The significant gaining sectors were information technology (+0.93 per cent), consumer staples (+0.88 per cent), industrials (+0.47 per cent) and consumer discretionary (+0.18 per cent). The big losers were utilities (-1.89 per cent), materials (-1.52 per cent) and telecommunication services (-0.56 per cent).

Stocks

In mining, BHP Billiton Ltd (ASX:BHP) fell 1.70 per cent to AU$33.54, Rio Tinto Ltd (ASX:RIO) was down 1.22 per cent to AU$4.80 and Fortescue Metals Group Ltd (ASX:FMG) shed 1.22 per cent to AU$2.42. Atlas Iron Ltd (ASX:AGO) slumped 2.70 per cent to AU$0.180 and gold miner Newcrest Mining Ltd (ASX:NCM) slid 3.94 per cent to AU$13.89.

Amongst other gold miners, Northern Star Resources Ltd (ASX:NST) was down 6.67 per cent to AU$2.24 and Beadell Resources Ltd (ASX:BDR) shed 4.84 per cent to AU$0.295. Both figured in the top losers list of the S&P/ASX 200. Rare earth miner Lynas Corporation Ltd (ASX:LYC) dipped 5.36 per cent to AU$0.0530 and was the second largest loser on the S&P/ASX 200.

The banks too were a sea of red. Commonwealth Bank of Australia (ASX:CBA) declined 0.68 per cent to AU$91.92, Westpac Banking Corp (ASX:WBC) fell 0.08 per cent to AU$38.26, Australia and New Zealand Banking Group (ASX:ANZ) was down 0.11 per cent to AU$35.66 and National Australia Bank Ltd (ASX:NAB) fell 0.08 per cent to AU$38.29.

Energy stocks were losers across-the-board. Santos Ltd (ASX:STO) fell sharply by 1.73 per cent to AU$7.94, Origin Energy Ltd (ASX:ORG) slid 0.97 per cent to AU$12.23, Oil Search Ltd (ASX:OSH) was down 0.25 per cent to AU$8.10 and Woodside Petroleum Ltd (ASX:WPL) fell 0.57 per cent to AU$35.10.

Telstra Corporation Ltd (ASX:TLS) fell 0.62 per cent to AU$6.38.

Retailers rallied after the pounding they received in recent sessions. Woolworths Ltd (ASX:WOW) rose sharply by 1.81 per cent to AU$29.82, and Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, was up 0.83 per cent to AU$43.66.

Ainsworth Game Technology Ltd (ASX:AGI) shot up by 5.26 per cent to AU$2.60 and was the best gainer on the S&P/ASX 200.

Economic news, currency and insight

The surprise decision by the RBA to keep rates on hold wrong-footed both the equity and currency markets. "The RBA's decision to leave rates unchanged after cutting at their first meeting of the year may reflect concern about the heat that is returning to the housing market," Aberdeen Asset Management senior investment manager Jasmin Argyrou said, as quoted by The Sydney Morning Herald. "Another rate cut will eventually be needed to cushion the economy from a slowdown in mining investment and sluggish non-resources sectors. Low inflation here and overseas will make the decision easier when the time comes."

“Credit is recording moderate growth overall, with stronger growth in lending to investors in housing assets,” said RBA Governor Glenn Stevens in a statement on the rate decision. “Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities over recent months. The Bank is working with other regulators to assess and contain risks that may arise from the housing market.”

Some economists questioned the RBA’s decision. “I can’t really rationalise it myself, because they’ve gone into another easing phase, presumably, and you don’t just do 25 basis points, because by their own admission that doesn’t do much,” said ANZ head of Australian economics Justin Fabo, and quoted by The Australian.

Meanwhile, building approvals hit another record high. According to the Australian Bureau of Statistics, the number of building approvals in January jumped 7.9 per cent from December, on a seasonally adjusted basis, and crossed 19,000 dwellings for the first time ever since data collection began 1983. The reading was a complete sea change from the decline of 2 per cent expected by economists in a Bloomberg survey. "The surprisingly strong January approvals number confirms the strong outlook for housing construction in 2015," said Westpac senior economist Matthew Hassan, according to ABC.

The Australian Bureau of Statistics said the country’s current account deficit during the December quarter was AU$9.59 billion on a seasonally adjusted basis, down from AU$12.13 billion in the September quarter. The agency said Australia’s terms of trade on goods and services fell 1.7 per cent in the December quarter on a seasonally adjusted basis, according to The Sydney Morning Herald.

At 07:00 this morning (AEDT), the Australian dollar was trading at 78.21 US cents, down from 78.35 US cents yesterday.

The local stock market is likely to open lower today considering the March ASX SPI200 Index (AP) Futures was trading down by 13 points to 5,892.0 at 07:59 this morning (AEDT).