Tough Decision for the RBA

The Australian stock market has finally broken out of its recent trading range to move within 20 points of the key 6000 level. Property and Material Sectors have led the markets higher on the back of strong property prices and more stable oil and iron ore prices. The 7% rebound in copper last month coupled with a lower Australian dollar has definitely played its part in driving some of our miners higher.

Despite most sectors pushing higher, some consumer stocks have been punished by the market. Myer’s stock price has been savaged after the sudden resignation of the company’s CEO and CFO. Traders see this as a time of uncertainty for the company’s board and immediate future and as such, the stock has been smashed down over 11%. Another household name, Woolworths, has continued its downward spiral, down another 4% since slashing its full year profit guidance on Friday. Investors will avoid uncertainty in defensive sectors and are not shy in bailing out of these stocks. This can be seen in the price movements today.

Looking ahead this week, we have PMI numbers out of Germany and the Eurozone tonight and the US tomorrow night. The biggest question for the Australian market though, is whether the Reserve Bank of Australia will follow the likes of China in cutting interest rates at their meeting tomorrow. Last weekend, China reduced its official interest rate by 25 basis points, despite concerns that a rate cut could drive their heated stock markets even higher. Australia is also battling with higher asset prices and there is a strong concern that a rate cut could send more money into housing and stocks rather than driving businesses and boosting consumer spending. The investment community is still divided on what tomorrow’s outcome will be. The only certain thing is that trading screens will watched closely at 2:30pm AEST tomorrow.  

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