Australia | Dec 04 2012
By Max Ludowici, Equities & Derivatives Advisor, 708 Capital
The XJO closed down 28 points or 0.62% to 4503.
The RBA cut the cash rate 25 basis points to 3% from 3.25%.
Australian stocks pushed lower today following negative leads from offshore and a raft of negative domestic data. Overnight data from the US showed the Institute of Supply Management’s (ISM) PMI index fell below 50 in November to 49.5 from October’s reading of 51.7, indicating a contraction in manufacturing activity. Analysts had been expecting a reading of 51.4 and the market was unappreciative of the news. Perhaps most importantly, the tit-for-tat negotiations between Democrats and Republicans began as make headway in resolving the well-known fiscal cliff issues.
The big news of the day was the RBA’s rate cut decision at 2:30pm pulling the cash rate to its GFC low. Whilst this was largely priced into the market given 80% of economists had anticipated a 25 basis point cut, the market drifted lower on the news. A classic case of “sell the fact” as traders locked in profits given the market’s strength from the prior fortnight. The RBA cited: a softening labour market, the persistently high AUD and non-mining investment remaining subdued as reasons for the cut but noted the inflation outlook was consistent with the target. Strangely, the AUD jumped on the announcement, perhaps as the RBA’s attaching explanatory statement had a more neutral tone than was expected and gave no indication that more cuts were likely.
We have seen seriously deteriorating domestic economic data recently with retail sales, nominal wage growth, building approvals and job ads all showing signs of a rapid deceleration in Australia’s growth and enforce the RBA’s decision to cut rates today. Basically, our economy is stagnating faster than anyone had anticipated even 6 months ago.
Contrary to America’s strengthening housing data, building approvals in Australia fell 7.6% in the month of October based on data released today.
Other data showed the current account deficit widened to 4% of GDP in Q3, driven predominantly by a fall in the terms of trade. A fall in export prices by 5.9% q/q outpaced a 2.0% q/q fall in import price dragging the terms of trade lower. Australia’s Q3 GDP will be announced tomorrow with most analysts expecting GDP growth to be +0.8% q/q.
The market’s reaction was more like interest rates had gone up with high yielders and retailers selling off on the news. Whilst the falls were somewhat muted, they were fairly widespread.
DOW futures are down 33 points.
(For a more comprehensive summary of last night’s market action see FNArena’s Overnight Report.)
This article produced at the request of and is published by FNArena with the expressed permission of 708 Capital.
708 Capital is a full service stockbroking and investment advisory firm. 708 offers investment and market advice to high-net-worth Private and Institutional clients in Australia and across the globe. 708's extensive network of contacts gives its clients exclusive access to ground-level fundraising opportunities and new company listings in a variety of small and large cap ASX listed companies. 708 has a longstanding track record of generating exceptional returns for its clients. Click here 708capital.com.au/contact-us/ for a no costconsultation and portfolioreview or to learn more visit www.708capital.com.au. Note: 708 Capital offers wealth management services for Sophisticated and Wholesale Investors only. We can only assist investors who are classified as Sophisticated Investors or have verified assets over AUD$2.5m.
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