Investors pin hopes on possible rate cut
The benchmark S&P/ASX 200 Index rose 38.3 points, or 0.78 per cent, to 4921, while the broader All Ordinaries was up 37.9 points, or 0.77 per cent, at 4940.5.
On Wall Street on Tuesday, the Dow Jones rose 0.7 per cent to 13,979.30 points, following data showing the US services sector continued to expand in January.
Local data released on Wednesday showed that retail spending in Australia had fallen for three consecutive months, a sign that rising unemployment was weighing on consumer confidence.
Retail trade was down 0.2 per cent in December, seasonally adjusted, well below expectations of 0.3 per cent rise for the month.
"I think we've basically followed on from the sentiment in the US," CMC Markets analyst Ric Spooner said. "Retail sales figures here [in Australia] were weak, but in a phase where the market wants to be optimistic, I think that's being parlayed into optimism on the increasing prospect of a rate cut."
Among the major banks, NAB advanced 32¢ to $28.11, Westpac climbed 21¢ to $28.13, ANZ gained 39¢ at $27.03, and Commonwealth Bank rose 33¢ to $64.63.
In the resources sector, global miner BHP Billiton firmed 34¢ at $37.52 as it met workers in Adelaide to announce some redundancies as part of efforts to slash costs. Rio Tinto picked up 75¢ at $68.08.
Among other stocks, medical centre owner Primary Health Care was steady at $4.49 as it lifted its first-half profit by 50 per cent and forecast a rise in full-year earnings of up to 8 per cent. Online real estate advertiser REA Group was 71¢ higher at $21.71 after it lifted its first-half profit by 25 per cent.
Streetwear company Globe International was untraded at 45¢ as its directors were re-elected at a board spill meeting in Melbourne.
Meanwhile, three-year bond futures prices rose after the weak retail trade figures left scope for more interest rate cuts.
The March three-year bond futures contract was at 97.16 (2.84 per cent), up from 97.15 (2.85 per cent). The 10-year contract was trading at 96.5 (implying a yield of 3.5 per cent), down from 96.53 (3.47 per cent).
CMC Markets strategist Michael McCarthy said local bond markets reacted sharply to the retail spending data.
"I'd be very surprised if the Reserve Bank took that as game-changing evidence for the need for a rate cut, but I note that the market has," Mr McCarthy said.
"There's clearly still a focus on that potential for a rate cut and that's got the short-end [three-year bonds] a little bit concerned."
Mr McCarthy said 10-year bond futures prices rose on the back of better growth prospects as the global economy improves.
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The local market rose after a positive lead from the United States and growing hopes of an interest rate cut. The S&P/ASX 200 gained 38.3 points (0.78%) to 4,921 and the All Ordinaries rose 37.9 points (0.77%) to 4,940.5, helped by stronger Wall Street sentiment (the Dow was up 0.7% to 13,979.30) and investor optimism about easing monetary policy.
Local retail trade fell for a third consecutive month — down 0.2% in December (seasonally adjusted) versus expectations of a 0.3% rise. That weak retail spending left room for the market to price in the possibility of further interest rate cuts, lifting short-dated bond futures and feeding optimism about a future RBA easing.
Three-year bond futures rose after the weak retail figures, with the March three‑year contract at 97.16 (implying a 2.84% yield) up from 97.15 (2.85%). The 10‑year contract traded at 96.5 (implying a 3.5% yield), down from 96.53 (3.47%). The three‑year move suggests the market is more focused on the near‑term potential for a rate cut, while commentators noted the 10‑year rise reflects improving global growth prospects.
Major banks gained ground: NAB advanced 32¢ to $28.11, Westpac rose 21¢ to $28.13, ANZ gained 39¢ to $27.03, and Commonwealth Bank increased 33¢ to $64.63, reflecting overall market strength and the interest‑rate sentiment.
Global miner BHP Billiton firmed 34¢ to $37.52 as it met workers in Adelaide to announce redundancies as part of cost‑cutting efforts. Rio Tinto picked up 75¢ to $68.08. Both stocks rose on the day amid broader resource‑sector flows.
Primary Health Care was steady at $4.49 after reporting a 50% lift in first‑half profit and forecasting full‑year earnings growth of up to 8%. REA Group rose 71¢ to $21.71 after lifting first‑half profit by 25%. Both companies’ profit upgrades supported their share price moves.
Streetwear company Globe International was untraded at 45¢ after its directors were re‑elected at a board spill meeting in Melbourne. The re‑election was the key corporate development noted for the stock.
No — the article notes that markets are increasingly focused on the potential for a rate cut, but CMC Markets strategist Michael McCarthy said he would be surprised if the Reserve Bank treated the weak retail data as game‑changing evidence for a cut. In short, the market is pricing in a possibility, but the RBA may not see current data as definitive.
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