Rebound leaves market flat for the week
For the week, the benchmark S&P/ASX 200 Index shed 3.2 points, to 5120.2, while the broader All Ordinaries Index lost 8.2 points to 5129.3.
Much attention was on the US, where the Dow Jones Industrial Average posted its 10th consecutive winning session, and a record high finish - for the eighth time in a row.
The dollar jumped more than US1¢ against the greenback, to US103.72¢, after remarkable but questionable jobs figures showed 71,500 jobs were added last month - the largest monthly gain in more than a decade. The unemployment rate remained steady at 5.4 per cent, as 53,700 part-time and 17,800 full-time positions were created.
The figures had some economists winding back their expectations of another Reserve Bank rate cut this year.
"The chance of a rate cut in April, for domestic reasons, is approaching zero," NAB economist Robert Henderson said.
But Matthew Johnson, UBS interest rate strategist, said the belief that the RBA had reached the end of its easing cycle was slightly exaggerated, even if the direction was right.
"Any sensible forecaster would be moving their forecast after the run of data" Mr Johnson said.
"Prior to that, other factors were encouraging as well, with the big increase in equity values and the decline in the Australian dollar that we've seen in the months up to now also giving us reason to think the RBA wouldn't have to cut the rate quite as far," he said.
The S&P/ASX 200 has been one of the best-performing indices this year. It has risen 10 per cent, matching the Dow Jones (+10.9 per cent), the S&P 500 (+9.6 per cent), and the FTSE 100 (+10.7 per cent).
Only Japan's Nikkei has been much better, gaining 20.6 per cent since early January.
On Friday the dollar came within a whisker of reaching ¥100 as the new heads of the Bank of Japan were confirmed by the country's upper house.
The dollar had been broadly firmer thanks to improving sentiment about the global economic outlook at home and abroad, and rising sharemarkets.
But currency strategists questioned whether the BoJ's expected push for further monetary easing would help to achieve its aim of 2 per cent inflation.
"The BoJ will not be able to achieve its 2 per cent inflation target unless the government introduces widespread structural reforms to the Japanese economy," CBA chief currency strategist Richard Grace said.
"During the last 15 years, and in response to deflationary pressures, the Bank of Japan has used a monetary policy mix of quantitative easing, a zero interest rate, and an overnight cash rate no higher than 0.7 per cent," he said.
"[Yet] Japan's economy has not been able to generate inflation."
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The market ended the week largely flat because a strong rebound on Friday (the market jumped 1.7%) offset earlier weakness. For the week the S&P/ASX 200 fell 3.2 points to 5120.2 and the All Ordinaries lost 8.2 points to 5129.3.
Friday’s rebound was supported by stronger global sentiment, including the US Dow Jones posting its 10th consecutive winning session and repeated record-high finishes, which helped lift investor confidence and drive the 1.7% bounce.
The surprisingly strong jobs report—71,500 jobs added (53,700 part-time and 17,800 full-time) and unemployment steady at 5.4%—pushed the Australian dollar up more than US1¢ to US103.72¢. The data prompted some economists to wind back expectations of another Reserve Bank rate cut this year, with NAB’s Robert Henderson saying the chance of an April cut is approaching zero.
Views are mixed: NAB economist Robert Henderson said a near-term cut looks unlikely, while UBS strategist Matthew Johnson warned that the idea the RBA has definitely finished easing may be slightly exaggerated and that forecasters should update their views after the recent run of data.
The S&P/ASX 200 has been one of the best-performing indices this year, up about 10%. That performance is similar to the Dow Jones (+10.9%), the S&P 500 (+9.6%) and the FTSE 100 (+10.7%), while Japan’s Nikkei has outperformed at about +20.6% since early January.
The dollar strengthened broadly—coming close to a notable level mentioned in the article—as new Bank of Japan leadership was confirmed. The firmer dollar reflected improving global economic sentiment and rising sharemarkets, but currency strategists questioned whether the BoJ’s expected further easing will help it reach its 2% inflation goal.
CBA chief currency strategist Richard Grace said the BoJ is unlikely to hit 2% inflation through monetary easing alone and would need widespread structural reforms from the government. He noted that over the last 15 years the BoJ has used quantitative easing, a zero interest rate and kept the overnight cash rate no higher than 0.7%, yet Japan has still struggled to generate inflation.
Investors should monitor upcoming economic data (especially jobs figures), RBA commentary on rate cuts, currency movements tied to global central bank actions, and equity market trends—since the recent rise in equity values and moves in the Australian dollar were highlighted as factors that could influence central bank decisions.
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