Yield stocks hold the key to market direction after the RBA decision

Lower overseas markets are likely to see a cautious tone on our market this morning on what looks like being a relatively quiet day in terms of fresh news.

Yesterday’s RBA decision which involved no rate cut but a clear easing bias, is a relatively neutral outcome for the stock market. While some investors maybe a little disappointed that the RBA failed to cut yesterday, the clear implication of the its easing bias is that it lower rates will be forthcoming within a couple of months. This means the difference between market expectations and yesterday’s outcome largely boils down to an issue of timing.

However, yesterday’s RBA decision is not entirely without risk to those expecting lower interest rates. There is now at least some risk that unexpectedly strong data may delay or even prevent the next rate cut. Today’s GDP data will be seen in this context. Australia’s GDP growth is expected to be below trend and too low to prevent a gradual upward drift in the unemployment rate.

Investor attitude towards yield stocks may be the key to the ASX 200 index today. Yesterday’s failure to cut rates could arrest upward momentum in this sector. It’s also possible that last week’s option expiry may have created some demand for bank stocks with investors seeking to replace stock sold as a consequence of options being exercised.  When this finishes, it may provide another reason for support for bank stocks to fade.

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