Source : THE AGE NEWS
By Staff reporters
The Australian sharemarket posted solid gains on Tuesday after the Reserve Bank cut interest rates for the second time this year and Wall Street gained despite a credit rating downgrade for the world’s largest economy.
The S&P/ASX 200 finished up 48.20 points, or 0.6 per cent, at 8343.30, with eight of the 11 industry sectors advancing, led by the banks and IT stocks. The market lost 0.6 per cent on Monday. The Australian dollar slipped 0.6 per cent to US64.17¢ after the rate cut.
The Reserve Bank’s second rate cut this year was widely expected by investors and banks.Credit: Louie Douvis
The RBA lowered the official interest rate from 4.1 per cent to 3.85 per cent in a move widely anticipated by the market. The central bank cut rates for the first time in more than four years in February and kept them on hold last month. The latest move will take $100 a month off the average mortgage of $600,000, offering some relief to consumers in the cost-of-living crisis.
In its statement announcing the cut, the central bank warned that “while recent announcements on tariffs have resulted in a rebound in financial market prices, there is still considerable uncertainty about the final scope of the tariffs and policy responses in other countries”. The geopolitical uncertainties had “contributed to a weaker outlook for growth, employment and inflation in Australia”, it said.
Facing reporters after the rate call, RBA governor Michele Bullock said that “directionally” the bank was confident the Australian economy is on the right track, but the unpredictability made things hard to quantify.
“We are still not sure that the financial markets will remain nice and steady,” she said. “The key point about the situation we’re in is it’s not just uncertain, it’s actually unpredictable.”
Despite the words of caution, AMP chief economist Shane Oliver said the RBA’s commentary overall still appeared more dovish, “leaving the door wide open for further easing” even though it wasn’t in a rush, unless the tariff threat escalates. The wealth management giant is expecting three more rate cuts by February next year.
While shares had rebounded strongly since early April and Trump’s trade war would continue to make for a volatile ride, those rate cuts would pave the way for reasonable gains for investors over the next year, he wrote.
Looking at individual movers on Wednesday, the big four banks all finished higher after the rate call. National Australia Bank, which was the first to say it would pass on the rate cut in full to its customers, was up 1 per cent. Its rivals followed suit within 30 minutes of the RBA announcement. ANZ shares rose 1.3 per cent while Westpac added 0.4 per cent.
CBA, the nation’s biggest lender and also the largest stock on the ASX, rose 0.6 per cent, having been up 1 per cent earlier in the session, hitting a fresh record. Investment bank Macquarie Group rose 2 per cent.
The downgrade adds to a long list of concerns that have already weighed on the market.
However, tech stocks were the strongest sector, boosted by an 11.3 per cent rally in enterprise software maker Technology One after the company said its net profit jumped 31 per cent to $63 million in the six months through March amid strong demand for its products. WiseTech Global, the biggest tech stock on the ASX, was up 2.7 per cent.
Telstra shares climbed 2.2 per cent after the telco said it will raise prices for most of its mobile phone and internet plans from July 1 by between $3 and $5 a month.
On the losing side, fertility treatments provider Monash IVF’s shares slumped 12.4 per cent after the company said its profits will be lower than flagged only two months ago due to “softer market and operating conditions”. Last month, the company made headlines for a mistake at one of its Brisbane clinics, where a woman gave birth to a stranger’s baby after an embryo mix-up.
Kogan fell 8.9 per cent after the online retailer said its New Zealand e-commerce site Mighty Ape “continues to be impacted by technical challenges” from a bungled website platform update that have hit its sales, and warned that the business won’t return to profits until next financial year.
On Wall Street overnight, benchmark indexes recovered from an initial jolt after the latest reminder that the US government may be hurtling toward an unsustainable mountain of debt.
The S&P 500 edged up by 0.1 per cent after Moody’s Ratings became the last of the three major credit-rating agencies to say the US federal government no longer deserves a top-tier “Aaa” rating. The Dow Jones added 0.3 per cent and the Nasdaq composite inched up by less than 0.1 per cent.
Moody’s pointed to how the US government continues to borrow more to pay for its expenses, with political bickering making it difficult to either rein in Washington’s spending or raise its revenue to get its ballooning debt under more control.
They’re serious problems, but nothing Moody’s said is new, and critics have been railing against Washington’s inability to control its debt for many years. Standard & Poor’s lowered its US credit rating in 2011.
The move by Moody’s essentially warns investors globally not to lend to the US government at such low interest rates, and the yield on the 10-year Treasury briefly jumped above 4.55 per cent early on Monday morning, up sharply from 4.43 per cent late Friday.
The downgrade by Moody’s comes ahead of a tense period for Washington, where it’s set to debate potential cuts in tax rates that could suck away more revenue.
The downgrade adds to a long list of concerns that have already weighed on the market. Chief among them is Donald Trump’s trade war, which itself has forced investors globally to question whether the US bond market and the US dollar still deserve their reputations as some of the safest places to park cash during a crisis.
