Hopes of rate cut turn tide in a sea of red

THE sharemarket again finished in the red after offshore markets fell sharply overnight.

By InvestSMART · 5 Oct 2011

By InvestSMART ·
5 Oct 2011

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THE sharemarket again finished in the red after offshore markets fell sharply overnight.

The local bourse opened almost 1 per cent lower but by the close had clawed back some ground as hopes were raised that the Reserve Bank of Australia would cut interest rates next month.

The benchmark S&P/ASX200 index fell 24.9 points, or 0.64 per cent, to 3,872.1, while the broader All Ordinaries was down 25.1 points, or 0.63 per cent, at 3,935.6.

The December share price futures index fell 8 points to 3880, with 50,287 contracts traded.

Bell Potter senior adviser Stuart Smith said the market began to turn around after the announcement - widely expected - by the Reserve Bank that it would hold interest rates steady for the 11th consecutive month.

Mr Smith said there was now speculation that comments by the RBA meant the cash rate could be cut before the end of the year.

He said said lower than expected trading volumes, after a public holiday in NSW, the ACT and South Australia on Monday, had not helped the market amid uncertainty. Turnover was 2.19 billion shares changing hands for $5.49 billion.

"The fact is that Australia is a very thin market ... we are spectating, like sitting on the dock of the bay, watching the tide come in and go out," he said.

All sectors had lost ground at the close, with about six out of ten stocks falling.

Gold prices again started to rise as bullion appeared to have regained its safe haven status against global economic uncertainty.

The spot price in Sydney was $US1,663.4 per ounce, up $US29.52.

Gold stocks were among the few to advance yesterday, with Australia's biggest goldminer, Newcrest, up 34?, or 1 per cent, at $33.90. Kingsgate Consolidated was up 18?, or 2.6 per cent, to $7.06.

Telecoms were hit hard at the close, with the sector losing 1.2 per cent. Telstra fell 4?, or 1.3 per cent, to $3.

All the major retail banks ended lower, except ANZ, which rose 4? to $18.98.

The big miners also lost ground, with BHP Billiton down 29? at $33.86, and rival Rio Tinto falling 30? to $59.

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Frequently Asked Questions about this Article…

What happened to the ASX200 and All Ordinaries today?

The benchmark S&P/ASX200 fell 24.9 points (0.64%) to close at 3,872.1, while the broader All Ordinaries slipped 25.1 points (0.63%) to 3,935.6, with most sectors ending lower.

Why did the sharemarket finish in the red despite talk of an RBA rate cut?

Offshore markets fell sharply overnight and local trading opened nearly 1% lower. Although speculation grew that the Reserve Bank of Australia might cut the cash rate before year-end, weaker offshore moves, low trading volumes after a public holiday and general uncertainty left the market finishing in the red.

What did the Reserve Bank of Australia announce and does it mean a rate cut is coming?

The RBA held interest rates steady for the 11th consecutive month. Market commentary suggested the RBA's remarks sparked speculation the cash rate could be cut before the end of the year, but the article reports this as market speculation rather than a confirmed decision.

How did gold and gold stocks perform, and why is gold in focus?

Gold rose as investors sought a safe haven amid global uncertainty. The spot price in Sydney was about US$1,663.4 per ounce, up US$29.52, and gold stocks were among the few gainers — for example Newcrest closed at $33.90 and Kingsgate at $7.06.

Which sectors and major companies were hit hardest during the sell-off?

All sectors lost ground by the close. Telecoms fell about 1.2% with Telstra down to roughly $3. Major miners also lost ground (BHP Billiton around $33.86 and Rio Tinto near $59), and most big retail banks ended lower except ANZ, which closed at $18.98.

What were trading volumes and market turnover like today?

Trading was relatively light: turnover was about 2.19 billion shares changing hands for $5.49 billion. Volume was affected by a public holiday in NSW, the ACT and South Australia.

How did futures trading reflect investor sentiment heading into December?

December share price futures fell 8 points to 3,880, with 50,287 contracts traded, signalling cautious investor sentiment ahead of the December contract.

What practical takeaways should everyday investors get from this market update?

The market is showing volatility and is described as ‘thin’ with lower volumes, so short-term moves can be driven by sentiment and news flow like RBA comments. Safe-haven assets such as gold can outperform in uncertain times, while many sectors can fall together. Everyday investors should keep a longer-term view, consider portfolio diversification and be mindful of their risk tolerance when reacting to daily market swings.