RBA caution tempers market optimism
The strong finish came as investors welcomed news that China had recorded better-than-expected trade data, fuelling optimism that its growth may be rebounding from its recent slowdown.
The benchmark S&P/ASX 200 Index gained 50.3 points, or 1 per cent, at 4971.3 points for the week, while the broader All Ordinaries Index rose 47.5 points, or 1 per cent, at 4989.4 points.
The Reserve Bank decided to keep the official cash rate on hold this week, at 3 per cent. But it said in a statement accompanying the decision that it had scope to cut rates if necessary. Then the RBA's statement on monetary policy, released on Friday, showed that it had lowered expectations for economic growth, and that it had revised up its outlook for unemployment growth.
The statement - which opened the door for interest rate cuts - saw the Australian dollar fall to its lowest level in more than three months.
On Friday the currency slipped to US102.56¢ briefly, its weakest level since October 24, before recovering to close on US102.98¢.
Economists said the statement - which highlighted subdued inflation, a weak employment outlook and expectations of below trend growth - suggested that another rate cut was on the cards.
"The RBA has hinted it is open to another easing," St George economist Janu Chan said. "If the run of data disappoints from now then there is a risk that the RBA will cut in March."
For shares on Friday, Arrium gained 5¢, at $1, despite taking a write-down of almost $500 million on the value of its steel division.
Australand Property Group slipped 7¢, at $3.40, after playing down the prospect of a successful takeover bid, following a 28 per cent jump in profits.
Blackham Resources surged 7.5¢, or nearly 70 per cent, at 22.5¢, after the junior gold explorer appointed Joseph Gutnick as its chairman and announced a $13 million funding deal. BHP Billiton rose 3¢, at $37.95, after the miner told workers at its Olympic Dam project about further planned job losses to slash costs.
Fortescue Metals rose 15¢, at $4.94, after agreeing to stop development of Iron Ore Holding's Iron Valley deposit in Western Australia.
National Australia Bank rose $1.02, at $29.02, after the bank said its priority in 2013 was to cut costs, even if it is on track to post a record $6 billion full-year cash profit.
News Corporation rose 13¢, at $27.43, even as the future of its Australian newspapers looked more uncertain and were partly blamed for an earnings downgrade.
Telstra slipped 3¢, at $4.62, after the telco said it was confident of achieving its full-year growth targets after more than 600,000 new mobile customers signed on in the first half.
Virgin Australia rose 0.5¢, at 43¢, as the competition watchdog flagged concerns about the airline's $35 million plan to buy a stake in budget airline Tiger Airways.
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Australian stocks regained momentum to close near a 22-month high. The S&P/ASX 200 gained 50.3 points, or about 1%, to finish at 4,971.3 points for the week, while the broader All Ordinaries rose roughly 1% to 4,989.4 points.
The RBA held the official cash rate at 3% but said it had scope to cut rates if necessary. Its accompanying statement lowered growth expectations and revised up the outlook for unemployment, opening the door to possible interest-rate cuts — economists noted another cut looks possible if upcoming data disappoints.
The RBA's statement highlighted subdued inflation, a weak employment outlook and expectations of below‑trend economic growth. Those revisions reduced the bank's near‑term growth outlook and increased expected unemployment growth, which contributed to talk of potential future rate cuts.
The Australian dollar fell to its weakest level in more than three months after the RBA statement, slipping briefly to US102.56¢ before recovering to close at about US102.98¢.
Several companies had notable moves: Arrium rose despite a nearly $500m write-down in its steel division; Australand Property Group slipped after downplaying takeover hopes despite a 28% profit jump; Blackham Resources surged after naming Joseph Gutnick chairman and announcing a $13m funding deal; BHP Billiton rose after revealing planned job losses at Olympic Dam to cut costs; Fortescue Metals gained after agreeing to stop development at Iron Valley; National Australia Bank climbed as it said cost cutting was a 2013 priority while tracking a record $6bn cash profit; News Corporation rose despite newspaper uncertainty and an earnings downgrade; Telstra slipped despite adding more than 600,000 new mobile customers; and Virgin Australia edged up amid competition watchdog scrutiny of its $35m Tiger Airways stake plan.
The RBA's tone suggested it is open to easing and economists said another rate cut is possible. The bank and analysts indicated that disappointing economic data — particularly weaker growth, subdued inflation or a worsening jobs outlook — could prompt a cut, with some commentary flagging March as a potential timing if data deteriorates.
Better‑than‑expected Chinese trade data helped lift investor optimism that China’s growth may be rebounding from a slowdown. That optimism supported Australian shares and contributed to the market’s strong finish for the week.
Everyday investors should watch upcoming Australian economic data (inflation, employment and growth indicators), RBA commentary for rate‑cut signals, and how the Australian dollar moves. Also monitor company‑specific news for stocks you own or follow — profit updates, write‑downs, board changes and funding deals were all drivers of share moves this week.
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