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Morning Market Update - 7 May 2019


Pre-Open Data

International Markets vs Australian Market

Key Data for the Week

Key economic data released this week:

  • Monday – AUS – Inflation Expectations – Forecasts for a rate cut have strengthened considerably after the recent weak inflation report for Q1.
  • Monday – EUR – Retail Sales were flat in March and annual growth softened from 3.0% in February to 1.9% in March.
  • Tuesday – AUS – Trade Balance
  • Tuesday – AUS – RBA Interest Rate Decision

S&P ASX 200 Last 12 Months

Australian Market

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.

Overseas Markets

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%. 

CNIS Perspective 

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.

Should you wish to discuss this or any other investment related matter, please contact your Investment Services Team on (02) 4928 8500.


Disclaimer

The material contained in this publication is the nature of the general comment only, and neither purports, nor is intended to be advice on any particular matter. Persons should not act nor rely upon any information contained in or implied by this publication without seeking appropriate professional advice which relates specifically to his/her particular circumstances. Cutcher & Neale Investment Services Pty Limited expressly disclaim all and any liability to any person, whether a client of Cutcher & Neale Investment Services Pty Limited or not, who acts or fails to act as a consequence of reliance upon the whole or any part of this publication.

Cutcher & Neale Investment Services Pty Limited ABN 38 107 536 783 is a Corporate Authorised Representative of Cutcher & Neale Financial Services Pty Ltd ABN 22 160 682 879 AFSL 433814.

 

Topics: CNIS, Dow Jones, Australian Market, ASX, international markets

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