the spasx 200 ends flat as investors choose to sell into the rbas rate cut 1379282015

Australian stocks closed virtually flat in yesterday’s trading which was marked by wild see-saws in investor sentiment. Sellers took advantage of an opening rally to dump stocks, and as a result, by the time of the RBA’s meeting, all those gains had been wiped out.

A brief rally ensued after news that the RBA cut interest rates by 25 basis points to a fresh record low of 2 per cent, but this too petered out in no time, and the S&P/ASX 200 was down to the day’s low of 5,802.20 by approximately 3 PM. A small rally in the last hour allowed the index to close for the day more or less unchanged.

“This is a most unusual market reaction,” Macquarie Private Wealth division director Martin Lakos said, according to The Australian. “The RBA decision is that they’ve cut, and to some extent you would expect the high yielding stocks to move higher, but they have been sold off too,” he said.

Other analysts surmised that the market sold off after the language of the RBA’s release hinted that the bank was done with its current cycle of monetary easing.

"Investors are thinking perhaps this is the last rate cut in the cycle,” said Credit Suisse analyst Damien Boey, as quoted by The Sydney Morning Herald. “That's what been priced in. The market sold off because investors can't see the explicit easing bias in the statement any more."

Indices and sectors

The benchmark S&P/ASX 200 on Tuesday fell 1 point, or 0.0 per cent, and closed at 5,826.5, while the broader All Ordinaries index was up 0.3 points, or 0.0 per cent, at 5,816.2.

The gaining sectors were telecommunications services (+0.98 per cent), real estate investment trusts (+0.40 per cent), healthcare (+0.37 per cent) and financials (+0.33 per cent). The top losing sectors on the day were materials (-1.68 per cent), energy (-0.49 per cent), technology (-0.41 per cent) and utilities (-0.26 per cent).

Stocks

The mining sector fared the worst in yesterday’s trading. BHP Billiton Limited (ASX:BHP) slumped 2.37 per cent to AU$32.56 and Rio Tinto Limited (ASX:RIO) was down 0.70 per cent to AU$59.48. However, Fortescue Metals Group Limited (ASX:FMG) closed a shade higher by 0.41 per cent to AU$2.46. Mount Gibson Iron Limited (ASX:MGX) closed unchanged at AU$0.220 and BC Iron Limited (ASX:BCI) fell 4 per cent to AU$0.480.

Energy stocks closed mixed. Woodside Petroleum Limited (ASX:WPL) was up 0.20 per cent to AU$35.50, Origin Energy Ltd (ASX:ORG) was down 0.30 per cent to AU$13.19, Oil Search Limited (ASX:OSH) fell 2.30 per cent to AU$8.07, while Santos Ltd (ASX:STO) rose 1.27 per cent to AU$8.76.

Banks too presented a mixed picture. While Commonwealth Bank of Australia (ASX:CBA) gained 0.15 per cent to AU$88.14 and Australia and New Zealand Banking Group (ASX:ANZ) surged 2.65 per cent to AU$34.12, Westpac Banking Corp (ASX:WBC) continued its slide and fell 0.90 per cent to AU$35.28, and National Australia Bank Ltd. (ASX:NAB) dipped 0.33 per cent to AU$36.17. Australia and New Zealand Banking shares were bid up by investors after the bank declared a better than expected first half profit of AU$3.5 billion accompanied with a 10 per cent rise in its loans, a 12 per cent growth in deposits and a jump of 8.7 per cent in its capital ratio, according to ABC.

Retailers however were mostly positive. Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, gained 0.63 per cent to AU$44.58, Woolworths Limited (ASX:WOW) fell 0.10 per cent to AU$29.63, and Myer Holdings Ltd (ASX:MYR) jumped 0.72 per cent to AU$1.40.

In telecom, Telstra Corporation Ltd (ASX:TLS) ended higher by 1.11 per cent at AU$6.38, iiNet Limited (ASX:IIN) rose 0.30 per cent to AU$10.00 and M2 Group Ltd (ASX:MTU) was up 0.91 per cent to AU$11.11. TPG Telecom Ltd (ASX:TPM) was the odd man out, however, and fell sharply by 1.68 per cent to AU$8.79. In the merger machinations surrounding iiNet Limited, it appears that the company may opt for M2's AU$1.6 billion mostly scrip buyout offer instead of TPG's original all-cash AU$1.4 billion proposal, according to The Sydney Morning Herald.

Economic news, currency and insight

The Reserve Bank of Australia yesterday cut its official interest rate by 25 basis points to a fresh record low of 2 per cent, as it moved to address concerns on the country’s weak economic performance. Governor Glenn Stevens said that the economy could be expected to suffer from “spare capacity for some time yet” in the light of subdued public spending, as well as “weakness in business capital expenditure in both the mining and non-mining sectors over the coming year,” according to The Sydney Morning Herald. The bank did acknowledge the recently improved trends in household demand and stronger growth in employment, as well as rising home prices in Sydney (“though trends have been more varied in a number of other cities”) and said that inflation was expected to remain within targeted limits over the next one to two years, despite a weakening domestic currency. “At today's meeting, the Board judged that the inflation outlookprovided the opportunity for monetary policy to be eased further, so as to reinforce recent encouraging trends in household demand,” said the statement from the Governor.

Australian Treasurer Joe Hockey remarked the RBA’s rate cut was akin to “fertilizer on the green shoots” of the economy, and said that the country’s budget next week would be “in sync” with the RBA’s strategy to boost economic growth, according to ABC. "Whether you be a household or a small business, now is the time to have a go, to borrow some money and to invest, invest in the things that help to create jobs," the Treasurer said, pointing to the record low interest rates.

Figures from Australia’s Bureau of Statistics released yesterday showed that declining commodity prices cost the country’s economy significantly in terms of economic growth as well as a larger than expected trade deficit. In March, Australia’s trade deficit was AU$1.3 billion, well above analysts’ expectations of AU$1 billion. The trade deficit would have been larger but for a sharp 2.4 per cent fall in imports, only partly offset by a 1.5 per cent decline in exports. "Over the past year, the value of resource exports are AU$3.2 billion lower per month, equivalent to a loss of earnings worth 2.25 per cent of annual GDP," said UBS chief economist Scott Haslem, as quoted by ABC.

The ANZ Roy Morgan consumer confidence survey showed that last week, sentiment was down 2.8 per cent led by worries regarding next week’s federal budget and likely deficits in the government’s finances, according to The Australian.

On Wall Street, stocks ended lower, impacted by a range of factors such as the logjam in Greece’s negotiations with its creditors, a stock sell-off in China and concerns regarding Friday’s non-farm payrolls report. The Dow Jones Industrial Average declined 142 points, or 0.8 per cent, to 17,928. The S&P 500 gave up 25 points, or 1.2 per cent, to 2,089 and the Nasdaq Composite dived 78 points, or 1.6 per cent, to 4,939.

The Australian dollar has continued to move higher after the RBA’s monetary policy meeting yesterday, bolstered by presumptions that the bank was done with its rate cutting efforts for now. At 07:20 this morning (AEST), the Australian dollar was trading at 79.42 US cents, up from 78.69 US cents on Tuesday, according to the Business Spectator.

The Australian stock market is likely to open lower today given that at 06:55 this morning (AEST) the June ASX SPI200 Index (AP) Futures was trading down by 50 points at 5,754.