Key Data for the Week
Key economic data released this week:
The Australian sharemarket fell 0.8% yesterday, with all sectors closing lower, except Utilities, as AGL Energy gained 0.6%. Information Technology led the declines, while retailers drove the Consumer Staples and Discretionary sectors down.
The Energy and Materials sectors followed softer commodity markets. Fortescue Metals slipped 2.1%, while BHP and Rio Tinto fell 0.4% and 0.5% respectively.
The Financials sector also lost ground, with Westpac the weakest performer of the big four banks, down 1.2%, after reporting weaker 1HFY19 earnings and FY19 expectations. Macquarie fell 2.5% after broker downgrades, while NAB and ANZ bucked the trend to post gains of 1.0% and 0.5% respectively.
The Australian futures market points to a 0.40% rise today.
European sharemarkets were weaker on Monday. The broad based STOXX Europe 600 fell 0.9%, the German DAX lost 1.0% and France’s CAC 40 slipped 1.2%. The UK FTSE 100 was closed for a bank holiday.
US sharemarkets were also lower overnight, with Health Care the only sector to improve. Investors were concerned after President Trump tweeted that tariffs on a raft of Chinese goods would increase on Friday, as the trade negotiations were proceeding too slowly.
The Dow Jones fell 0.3%, the S&P 500 and NASDAQ both lost 0.5%.
Information Technology stocks were amongst the worst performers. Semiconductor and chip makers Applied Materials and Micron Technology fell 1.9% and 2.8% respectively, Apple slipped 1.5% and Facebook lost 0.8%, while Alphabet bucked the trend to gain 0.3%.
The last change to the Official Cash Rate (OCR) by the RBA was back in August 2016 and in the 33 months since then, most board meetings have attracted little attention, given the lukewarm condition of the Australian economy.
That is, there has been no argument strong enough to justify either raising or lowering the OCR.
Today’s announcement however is attracting significant attention, given the recent deterioration of the economy, which has prompted widespread calls for a rate cut from 1.50% to 1.25%.
The probability is currently standing at around 50 - 50. This confirms a shift in consensus, given it was only last Friday the probability of a rate cut stood at 39%, and also aligns with the AUD falling below 70 US cents.
From an economic perspective it seems overwhelmingly justifiable to cut the rate.
However, there is a federal election next Saturday, and maybe the RBA will avoid any political fallout by ‘kicking the can’ down the road this month, and make their move next month instead.
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