Eye on Reserve Bank as index falls slightly

THE sharemarket ended marginally lower yesterday, dragged down by losses in mining and energy shares as worries about growth in the US and China depressed commodity prices.

By InvestSMART · 30 Mar 2012

By InvestSMART ·
30 Mar 2012

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THE sharemarket ended marginally lower yesterday, dragged down by losses in mining and energy shares as worries about growth in the US and China depressed commodity prices.

However, the market outperformed the Asian region for the second straight session, supported by a weaker Australian dollar, which has boosted the outlook for company earnings.

At the close, the S&P/ASX 200 Index was down

5.6 points at 4337.9.

"Our market has held up well considering the weakness which has plagued international markets," said CMC Markets trader Ben Taylor. "While some traders believe we are merely playing catch-up from our recent underperformance, other investors believe the reason for resilience is a pending Reserve Bank rate cut next week."

Japan's market slipped 0.7 per cent, Hong Kong was down 1.2 per cent and China was off 0.6 per cent. The local resilience and weaker sentiment in the Asian region gave speculators an excuse to increase bets that the RBA might cut its benchmark rates to 4 per cent next week.

The strength of the currency has made it hard for manufacturers to compete, denting the earnings of companies with operations in the US and elsewhere.

CMC Markets strategist Michael McCarthy said this week's performance signalled a substantial commitment to Australian equities by investors. "The absolute standout is healthcare," he said. "For the second day in a row it's been the top performing sector and it's been quietly buoyant for the last two weeks."

He said there was an argument that a recent easing in the dollar was pushing up healthcare stocks with offshore exposures, such as CSL, but the strong performance in Sonic Health Care indicated that other factors were at play.

CSL gained $1.15, or 3.3 per cent, to $36.30 yesterday while Sonic rose 9? to $12.52.

Other defensive sectors, including IT, consumer staples, utilities, telcos and property trusts, were also in favour. Telstra firmed 2? to $3.30, Computershare climbed 17?, or 1.9 per cent, to $8.97 and Woolworths advanced 23? to $25.64.

Banks and financials, excluding property trusts, posted gains for the sixth day in a row, with the sector rising 7.5 per cent in the past 15 trading days. Three of the big-four banks advanced but Westpac dipped 6? to $21.88. Bank of Queensland plunged 41?, or 5.4 per cent, to $7.24 as investors digested the effect of its capital raising.

Materials and oil stocks underperformed, with BHP Billiton losing 36?, or 1 per cent, to $34.25, and Rio Tinto down 17? at $64.36.With AGENCIES

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Frequently Asked Questions about this Article…

What happened to the ASX 200 yesterday and why did the index fall slightly?

The S&P/ASX 200 finished marginally lower, down 5.6 points to 4,337.9. The fall was largely driven by losses in mining and energy shares as worries about growth in the US and China depressed commodity prices, even though the local market outperformed much of the Asian region.

How did mining and materials stocks affect market performance?

Materials and oil stocks underperformed, weighing on the market. For example, BHP Billiton lost about 1% to $34.25 and Rio Tinto eased to $64.36. Slower commodity demand and weaker prices were cited as the main reasons mining stocks dragged the index down.

Why does the Australian dollar matter for company earnings and share prices?

A weaker Australian dollar helped lift the outlook for company earnings, particularly for firms with offshore revenue. The article notes the softer currency boosted sentiment and may have pushed up some healthcare stocks with foreign exposure.

Is the Reserve Bank of Australia (RBA) rate decision influencing the market right now?

Yes. Traders and speculators increased bets that the RBA might cut its cash rate to around 4% next week, and some investors see a pending RBA rate cut as a reason the market has shown resilience despite international weakness.

Which sectors were the top performers and why were defensive stocks favoured?

Healthcare was the standout sector, performing strongly for the second day in a row. Other defensive sectors in favour included IT, consumer staples, utilities, telcos and property trusts. Investors appeared to favour these sectors amid uncertainty in commodities and global growth.

How did major healthcare stocks like CSL and Sonic Health Care perform?

CSL gained $1.15, or about 3.3%, to $36.30. Sonic Health Care also rose to $12.52. The article suggests the easing in the Australian dollar helped some healthcare stocks with offshore exposure, though Sonic's gains indicate other factors were also supporting the sector.

What was happening with banks and financial stocks during the session?

Banks and financials (excluding property trusts) posted gains for a sixth straight day, with the sector up about 7.5% over the past 15 trading days. Three of the big four banks advanced, but Westpac slipped to $21.88. Bank of Queensland fell 5.4% to $7.24 as investors reacted to its capital raising.

What should everyday investors be watching after this market session?

Keep an eye on the upcoming RBA decision and commentary about possible rate cuts, movements in the Australian dollar, and commodity price trends driven by US and China growth concerns. Company-specific news—such as earnings, offshore exposure and capital raisings like Bank of Queensland’s—also influenced prices during this session.