Rate cut, poor outlook hit shares

THE sharemarket closed more than half a percentage point lower after the Reserve Bank cut the cash rate to 3 per cent amid a weak global growth outlook.

By InvestSMART · 5 Dec 2012

By InvestSMART ·
5 Dec 2012

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THE sharemarket closed more than half a percentage point lower after the Reserve Bank cut the cash rate to 3 per cent amid a weak global growth outlook.

At the close, the benchmark S&P/ASX 200 Index was 27.9 points, or 0.62 per cent, lower at 4503.6.

The Reserve Bank cut the cash rate by 25 basis points to 3 per cent, a level not seen since the global financial crisis, and said global growth was expected to be below average due to the European debt crisis and the looming US fiscal cliff.

Options Xpress analyst Ben Le Brun said overall it had been a disappointing day.

"When perception gets ahead of reality we start to see some wild fluctuations or some wild price movements, and that's certainly what we saw," Mr Le Brun said.

All sectors of the market, with the exception of healthcare, turned negative after the interest rate cut and the release of the RBA's accompanying statement. Investors had priced in some softness before the overseas session.

The chairman of retailer Premier Investments, Solomon Lew, told the company's annual meeting the macro-economic environment remained challenging. Premier Investments shares fell 7? to $6.40.

Gold stocks were weaker, with Newcrest Mining down 46? at $24.80. BHP Billiton was down 28? at $34.26, while Rio Tinto was 13? lower at $58.41.

In the banking sector, ANZ shares were 10? lower at $24.59, while Westpac shares were down 14? to $25.42. National Australia Bank fell 4? to $24.25 and Commonwealth Bank dropped 31? to $60.50.

The spot price of gold in Sydney was $US1701.62 an ounce, down $US17.63.

National turnover was 1.2 billion securities worth $3 billion.

Meanwhile, the dollar rallied after the central bank's interest rate cut.

Late on Tuesday, the dollar was trading at US104.38?, up from US104.06? on Monday.

Easy Forex currency dealer Anthony Botros said the dollar rallied on the decision because the 25-basis-point interest rate reduction was fully expected by the market and further interest rate cuts from the RBA looked unlikely.

"They said recent easings of late are starting to work their way through the economy and they foresee that inflation pressure will be contained in the next one to two years," Mr Botros said.

"So the market has taken that on board as though the rate cut we saw in October and in December might be all for the time being."

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Frequently Asked Questions about this Article…

What happened to the ASX after the RBA cut the cash rate to 3%?

The Australian sharemarket fell after the Reserve Bank cut the cash rate by 25 basis points to 3%. The benchmark S&P/ASX 200 closed 27.9 points lower (about 0.62%) at 4,503.6, with the market ending more than half a percentage point down for the day.

Why did the RBA cut the cash rate and what did the bank say about global growth?

The RBA trimmed the cash rate by 25 basis points to 3%, a level not seen since the global financial crisis. In its statement the bank said global growth was expected to be below average, citing the European debt crisis and the looming US fiscal cliff as important risks to the outlook.

Which ASX sectors were hit by the rate cut and which held up?

According to the article, every sector except healthcare turned negative after the interest rate cut and the RBA's accompanying statement. Healthcare was the only sector to avoid the broad downside on the day.

How did major retailers respond — what happened to Premier Investments shares?

Premier Investments shares fell following the RBA decision. The company’s chairman Solomon Lew said the macro-economic environment remained challenging, and Premier Investments closed at $6.40 on the day.

What happened to mining and resources stocks after the RBA announcement?

Mining and gold-related stocks were weaker. Newcrest Mining was trading at $24.80, BHP Billiton at $34.26 and Rio Tinto at $58.41, all down in the session as investors reacted to the rate cut and the economic outlook.

How did Australia’s big banks perform after the rate cut?

Major bank shares fell on the day: ANZ was at $24.59, Westpac at $25.42, National Australia Bank at $24.25 and Commonwealth Bank at $60.50, reflecting broad weakness in the financial sector following the RBA move.

What happened to the gold price and gold stocks on the day of the rate cut?

The spot price of gold in Sydney fell to US$1,701.62 an ounce, down US$17.63. Gold stocks were also softer, contributing to the overall weakness in the market.

How did the Australian dollar react to the RBA rate cut and what did currency analysts say?

The Australian dollar rallied after the decision, trading at US104.38¢ up from US104.06¢. Easy Forex currency dealer Anthony Botros said the 25-basis-point cut was fully expected by the market and that further cuts looked unlikely, noting the RBA believes recent easings are starting to work through the economy and inflation pressure may be contained over the next one to two years.