Price war concerns weigh on retail staples
The benchmark S&P/ASX 200 Index was up 0.9 points at 5047.2, while the broader All Ordinaries fell 1.6 points to 5026.3.
The market fell in early trading on weaker than expected building approvals, before it moved higher when Reserve Bank governor Glenn Stevens fuelled expectations of an interest rate cut next week.
Business confidence had to improve, he said, and further monetary easing was an option, with a decision to be made at next week's RBA monthly board meeting.
The dollar started falling as he rose to speak, but equities were more subdued, moving from being mildly below Monday's close to slightly up.
CMC Markets sales trader Betty Lam said she was surprised Mr Stevens' comments did not cause more gains. "It has been neither here nor there, probably due to the fact that there has been no real overly convincing data come out from anywhere," she said.
That will change over the next week, with important data, including job numbers, to come from the US.
Consumer staples were the big losers after Woolworths announced a rise in annual sales to $59 billion, with the market focusing more on the deflationary price war that was forcing it to lift volumes to grow earnings.
Woolworths shares closed down 55¢, or 1.6 per cent, at $33.22 while the owner of rival Coles, Wesfarmers, was down 31¢ at $40.22.
The big four banks recovered from early losses, with ANZ 5¢ lower at $29.59, Commonwealth Bank up 17¢ to $74.03, NAB up 3¢ to $31.19 and Westpac 4¢ better at $30.86.
The dollar fell sharply after Mr Stevens' speech and late on Tuesday was trading at US90.63¢, down from US92.45¢ on Monday.
The futures market is now pricing in a near-90 per cent chance the RBA will cut the cash rate.
In his speech in Sydney, Mr Stevens said there were signs of previous rate cuts working in the economy, but not enough to prevent further cuts.
Easy Forex currency dealer Tony Darvall said the speech gave the dollar a smacking. "Because ... he was so blatant in talking the Aussie down, traders who were already bearish on the Aussie dollar just took it as a free hit," Mr Darvall said.
Frequently Asked Questions about this Article…
The market finished largely unchanged because early weakness from weaker-than-expected building approvals was offset by a later boost when RBA governor Glenn Stevens suggested a cash rate cut was a possibility. Traders remained cautious, with no single piece of data strong enough to drive big moves.
Glenn Stevens said there were signs previous rate cuts were working but that further monetary easing was an option, and a decision would be made at the next RBA board meeting. For investors, that raised expectations of a near-term cash rate cut, which can influence sectors like banks, property and the Australian dollar.
Woolworths reported annual sales rising to $59 billion, but the market focused on the deflationary price war. Woolworths shares closed down 55c (1.6%) at $33.22, while Wesfarmers (owner of Coles) fell 31c to $40.22 as investors worried about margin pressure from price competition.
Consumer staples underperformed because investors were concerned the ongoing price war is deflationary — forcing supermarkets to boost volumes to grow earnings — which can squeeze margins and weigh on share prices despite rising sales figures.
The big four banks recovered from early losses: ANZ closed 5c lower at $29.59, Commonwealth Bank was up 17c to $74.03, NAB rose 3c to $31.19, and Westpac improved 4c to $30.86, showing mixed but generally stabilising bank sector performance after RBA commentary.
The Australian dollar fell sharply after the speech. Late on Tuesday it was trading at US90.63c, down from US92.45c on Monday, with currency dealers saying the governor’s comments encouraged already bearish traders to push the Aussie lower.
The futures market was pricing in a near-90% chance of an RBA cash rate cut, reflecting strong investor expectation that the RBA could ease policy at the upcoming board meeting after the governor’s remarks.
Important data expected to move markets includes US economic releases such as job numbers, plus the RBA’s monthly board decision. Market commentators noted these upcoming data points could shift sentiment after a quiet session.
Call 1300 880 160
Start a chat
Schedule a call
