The S&P/ASX200 Index rose as much as 1.5 per cent in thin trade as some investors figured a depressing report on business conditions may push the Reserve Bank of Australia to cut its benchmark cash rate next month.
At 1552 AEST the index had added 81.57, or 1.7 per cent, to 4892. The total value of trade was $2.2 billion when many traders went to lunch, well down on previous volumes.
Investors shrugged off an NAB survey of business conditions that showed that a measure of hiring, sales and profits fell to minus eight, a four-year low. Alan Oster, NAB’s chief economist, says the NAB survey will push the Reserve Bank to cut its cash rate from 2.75 per cent at its August meeting.
“Might the RBA now be thinking that businesses may need a leg up from policy?” asks Joshua Williamson, an economist at Citigroup.
Bank stocks, which make up almost a third of the market, accounted for much of the index’s gains. Commonwealth Bank, which has gained 1.1 per cent, since the beginning of July, rose 2 per cent, to $70.37. NAB, down 0.8 per cent since the end of June, rose 2.32 per cent, to $29.54.
The two stocks have performed worse than the index that has gained 1.5 per cent since the beginning of the month, CBA and NAB are expected to maintain earnings growth amid an economic slowdown because of their strong franchises.
Supermarket retailer Woolworths share added 2.31 per cent, to $33.28. The stock has gained 0.7 per cent since the end of June.
David Jones increased 1.3 per cent, to $2.56. The stock is rated a buy by Morgan Stanley who expects the department store operator to double its operating margins, ex property, on better sales of its own labels, store optimisation and online strategy.
David Jones shares have gained just 6.3 per cent in the last 12 months compared with the 18 per cent rise in the index during the same period, according to Bloomberg data.
BHP rose 2.49 per cent, to $33.28. The stock has gained just 0.03 per cent in the last 12 months, according to Bloomberg. Morgan Stanley says the world’s biggest mining company has a better cost cutting plan and is further advanced on cost reduction than its competitors.