the rbas rate cut boosts australian stocks to a near seven year high 966432015

A rate cut by the Reserve Bank of Australia powered Australian stocks to their ninth daily gain, and close to a seven-year high. An improving outlook for commodities such as oil and iron ore boosted stocks in the energy and materials sectors. The S&P/ASX 200 was marking time near its opening levels until 2:30 PM but moved sharply higher on news of the rate cut and closed near its high of the day.

Indices and sectors

The benchmark S&P/ASX 200 ended up by 82.1 points, or 1.4 per cent, at 5,707.4, while the broader All Ordinaries index rose 79.7 points, or 1.4 per cent, to 5,666.2.

The best-performing sectors were energy (+3.93 per cent), materials (+2.29 per cent), telecommunications (+2.04 per cent) and financials (+1.46 per cent). Healthcare, the sole losing sector, fell just 0.23 per cent.

Stocks

According to economists, the RBA could implement further interest rate cuts down the road, judging from its dovish stand at yesterday’s meeting. “With more cuts forecast, the share market is the only play to get income now,” said Equity Trustees head of asset management Paul Kasian, according to The Sydney Morning Herald.

In the hunt for yield, banking stocks were in the limelight yesterday. Commonwealth Bank of Australia (ASX:CBA) was up 0.8 per cent to a new all-time high closing of AU$90.40, Westpac Banking Corp (ASX:WBC) jumped 1.2 per cent to AU$35.26, Australia and New Zealand Banking Group (ASX:ANZ) was up 2.2 per cent to AU$34.11 and National Australia Bank Ltd (ASX:NAB) gained 1.6 per cent to AU$36.23.

Blue-chip Telstra Corporation Ltd (ASX:TLS) was up 2.1 per cent to AU$6.67.

Energy stocks were boosted by the gains in the oil price of nearly 14 per cent since Friday, with Santos Ltd (ASX:STO) powering higher by 2.6 per cent to AU$8.21 and Oil Search Ltd (ASX:OSH) up 4.4 per cent to AU$8.33. Woodside Petroleum Ltd (ASX:WPL) shot up 3 per cent to AU$35.69. Beach Energy Ltd (ASX:BPT), the top gainer on the S&P/ASX 200, vaulted 15.54 per cent to AU$1.167. Senex Energy Ltd (ASX:SXY) was the second best gainer, and leapt 14.04 per cent to AU$0.325.

In mining stocks, BHP Billiton Ltd (ASX:BHP) jumped 3.6 per cent to AU$30.65, Rio Tinto Ltd (ASX:RIO) was up 1.9 per cent to AU$58.58, Fortescue Metals Group Ltd (ASX:FMG) gained 2.6 per cent to AU$2.37.

Education services provider Navitas Ltd (ASX:NVT) was the biggest loser on the S&P/ASX 200 falling 9.52 per cent to AU$4.75, after the company reported that its net profit of AU$31.3 million for the first half year ended December 31 fell 13 per cent compared with the same period in 2013.

Economic news, currency and insight

The Reserve Bank of Australia yesterday joined the rising number of global central banks that have eased interest rates in recent weeks. The RBA cut its benchmark interest rate to an all-time low of 2.25 per cent, the first such cut since August 2013, as it moved to boost growth in the sluggish Australian economy as well as push down the Australian dollar. “The bank’s assessment is that output growth will probably remain a little below trend for somewhat longer and the rate of unemployment peak a little higher than earlier expected,” said RBA governor Glenn Stevens in a statement. “This action is expected to add some further support to demand, so as to foster sustainable growth and inflation outcomes consistent with the target,” he added.

Reading between the lines, many economists said a second cut could be around the corner, perhaps as early as next month. "The tone of the statement is quite dovish, with obvious concern for underlying growth in domestic demand," said ANZ chief economist Warren Hogan, and quoted by The Sydney Morning Herald. "Our initial reading is the RBA could well follow up today's move in March and it therefore does raise the possibility, at least for market expectations, of a cash rate below 2 per cent this year."

The RBA’s move “threw the Australian dollar under a bus” so to speak, and the currency crashed to a new five-and-half-year low yesterday, falling to a low of 76.26 US cents by 18:00 yesterday (AEDT). However the currency has since recouped all of those losses and traded at 78.00 US cents at 08:40 this morning (AEDT), chiefly due to weakness in the US dollar following rising oil prices, disappointing economic data from the US and the likelihood of a Greek debt deal, according to The Australian.

Australia’s trade deficit fell sharply in December on account of the decline in oil prices as well as the depreciation in the Australian dollar, according to the Australian Bureau of Statistics, as reported by The Daily Telegraph. The trade deficit was impacted favourably by a rise of one per cent in exports and a decline in imports by the same percentage, and fell to AU$436 million in December from AU$1.02 billion in November, belying analysts’ expectations of a deficit of AU$875 million.

The Australian Bureau of Statistics said approvals to build or renovate houses and apartments fell by 3.3 per cent in December compared to November. According to MarketWatch, this reflects recent trends in housing construction showing solid growth in the construction of apartments in contrast to weak trends in the building of detached houses. “In aggregate, the number of multi-unit approvals across the country fell by 7.9 per cent in December, although the number approved was 12.7 per cent higher than the corresponding month a year earlier,” said Geordan Murray, economist for the Housing Industry Association, and quoted by Australian Broker Online.