RBA cuts rates, banks drag market off early highs
With the US market up ~5% overnight it’s safe to say a better effort from the Australian market was expected today, however a 25bp cut from the RBA and subsequent sell-off in the banking sector dragged the market down from early highs, closing up just +44pts , nearly 90pts from the days peak. The banks succumb to political pressure and passed on the full cut which puts pressure on their net interest margins - when banks are sold the market struggles and that was the clear takeaway from today’s pretty dismal effort.
IT stocks were best on ground today enjoying the overseas strength, Xero (XRO) led the sector higher followed by Afterpay (APT) - money flowing into the sector leaders, while it was the banks that put a lid on the optimism. The market put in a high of +132pts at lunchtime but couldn’t go on with it – a close up just +44pts shows how nervous the market is, not surprising given that just 7 days ago we peaked at 7197, a drop to Mondays low of more than 13%.
Asian stocks did okay although they didn’t embrace the US’s optimism overnight. US Futures were stronger early however Reuters reported that the G-7’s response to combat the coronavirus was unlikely to call for coordinated interest rate cuts nor specific government spending. Clearly the market is becoming fixated with the policy response, and whispers here casting some doubt
Overall, the ASX 200 added +44pts / +0.69% today to close at 6435. Dow Futures are trading down -41pts/-0.15%
Volume again massive on the ASX , as was the case yesterday (and last week). North of $11bn
ASX 200 Chart
ASX 200 Chart
CATCHING MY EYE
Today’s rate cut: The RBA cut rates today by 0.25% taking the benchmark to a record low of 0.50%. Bond yields actually rose after the announcement and so to did the Aussie Dollar showing the move was already well and truly priced in + there was a portion of the mkt expecting more.
Aussie Dollar Chart
Banks: the chart of CBA shows how the banks reacted to today’s cut – not well. Some aggressive selling played out and they all closed on their lows. CBA back below $80.
Commonwealth Bank (CBA) Chart
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James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...