australian stocks give up their gains as the rba keeps interest rates on hold 1263862015

The Australian stock market closed with gains on Tuesday, despite a sharp fall in the late afternoon after the announcement by the Reserve Bank of Australia that it would keep its benchmark cash rate unchanged.

In volatile trading, the S&P/ASX 200 raced higher out of the gate in the opening hour of trade, reaching its best level for the day at 5,981.70, but correcting thereafter to levels around 5,960 just before the RBA announcement. Upon release of the RBA’s decision, the index fell sharply to the day’s low of 5,898.60. However, a small rally in the last half-hour enabled it to close above that level.

Indices and sectors

The benchmark S&P/ASX 200 on Tuesday rose 27.4 points, or 0.5 per cent, and closed at 5,926, while the broader All Ordinaries index was up 23.5 points, or 0.4 per cent, at 5,893.2.

The main gaining sectors were energy (+1.16 per cent), utilities (+0.83 per cent), industrials (+0.78 per cent) and materials (+0.78 per cent). There were only two losing sectors, namely information technology (-0.78 per cent) and consumer discretionary (-0.17 per cent).

Stocks

Shares in Atlas Iron Limited (ASX:AGO) were suspended from trading yesterday after the company said that the rapid fall in the price of iron ore had compelled it to undertake a comprehensive review of its business, including possible asset sales and a capital restructuring, according to The Sydney Morning Herald.

Meanwhile, after seven sessions of losses, benchmark iron ore delivered at Tianjin in China eked out a small gain in the latest offshore session, closing at US$47.60 per tonne, up 1.9 per cent from the previous closing of US$46.70 per tonne according to the Herald Sun.

A divergent trend was noted in the mining group, with the larger companies ending with gains while the juniors clocked losses. BHP Billiton Limited (ASX:BHP) gained 0.76 per cent to AU$30.45 and Rio Tinto Limited (ASX:RIO) rose 0.66 per cent to AU$56.15, but Fortescue Metals Group Limited (ASX:FMG) fell 1.37 per cent to AU$1.79, Mount Gibson Iron Limited (ASX:MGX) crashed 7.14 per cent to AU$0.195, and BC Iron Limited (ASX:BCI) slumped 11.59 per cent to AU$0.305.

Rio Tinto Limited (ASX:RIO) reported on Tuesday that it had bought back about 11.6 million shares at AU$48.44 per share in a AU$560 million off-market share buyback as part of its larger AU$2 billion capital return program, reported the Mining Weekly. The buyback price represented a 14 per cent discount to the market price.

With the exception of Commonwealth Bank of Australia (ASX:CBA), which was down 0.20 per cent to AU$94.21, the other three big banks closed in the black. Westpac Banking Corp (ASX:WBC) was up 0.53 per cent to AU$39.66, Australia and New Zealand Banking Group (ASX:ANZ) gained 0.63 per cent to AU$36.90 and National Australia Bank Ltd. (ASX:NAB) shot up 1.65 per cent to AU$39.33.

Energy stocks were higher following overnight gains in the price of crude oil. Woodside Petroleum Limited (ASX:WPL) was up 0.64 per cent to AU$34.37, Origin Energy Ltd (ASX:ORG) gained 0.27 per cent to AU$11.33, Oil Search Limited (ASX:OSH) was up 1.83 per cent to AU$7.23 and Santos Ltd (ASX:STO) shot up 2.16 per cent to AU$7.10.

Amongst retailers, with the exception of Woolworths Limited (ASX:WOW), which closed flat at AU$28.99, other larger stocks closed higher. Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, was up 0.11 per cent to AU$43.56, Caltex Australia Limited (ASX:CTX) gained 0.26 per cent to AU$34.94 and Myer Holdings Ltd (ASX:MYR) rose 0.77 per cent to AU$1.31.

In telecoms, Telstra Corporation Ltd (ASX:TLS) gained 0.16 per cent to AU$6.33. However, iiNet Limited (ASX:IIN) lost nearly 1 per cent at AU$8.85 while TPG Telecom Ltd (ASX:TPM) rose 1.80 per cent to AU$9.61.

Economic news, currency and insight

The Reserve Bank of Australia yesterday decided to leave its benchmark interest rate steady at a record low of 2.25 per cent, making it two months in a row that the bank denied market participants the benefit of a rate cut. Nevertheless, the bank kept alive the possibility of interest-rate cuts in the future. Governor Glenn Stevens said:  “Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target. The Board will continue to assess the case for such action at forthcoming meetings.”

The RBA’s openly stated desire to see the Australian dollar at lower levels, as well as the recent crash in iron ore prices had convinced many in the markets that the bank would cut rates at yesterday’s meeting. "The 25 per cent drop in iron ore in the last month has not been enough to push them at this point in time, but ultimately it will," RBC Capital Markets senior economist Su-Lin Ong told Reuters, according to ABC. "The drop in the terms of trade and the implications for national income and growth will see some further easing."

The Australian Securities and Investments Commission, the country’s financial market watchdog, is investigating a suspicious spike in the value of the Australian dollar a few seconds before the Reserve Bank of Australia announced its April interest rate decision. "ASIC confirms it will investigate a spike in the Australian dollar shortly before the Reserve Bank's monetary policy decision today," it said, as quoted by the Business Spectator. "ASIC is also investigating foreign exchange movements shortly before the RBA's announcements in February and March 2015."

The West Australian government is proposing to sell over AU$800 million worth of prime real estate held in an investment portfolio of the AU$4.4 billion Insurance Commission of Western Australia (ICWA), according to The Australian. The properties include 3 A-grade commercial towers in the heart of Perth and two major retail shopping centres. “If we are able to extract the right value for these assets, it will provide an opportunity for ICWA to reallocate sale proceeds into indirect property investments and other investment classes in line with our investment strategy,” said ICWA chief executive Rod Whithear. “In the current market, there is a lack of supply of properties for sale and historically low-debt costs, so international and domestic buyers are actively searching for portfolio-level opportunities like this one,” he added.

Data from the Federal Chamber of Automotive Industries showed that over 105,000 vehicles sold in March, an all-time record for that month. Car sales were up 8 per cent from a year earlier, led by SUV sales which jumped 15 per cent, according to news.com.au.

Figures from the Bureau of Statistics showed that the value of retail sales jumped 0.7 per cent in February, ahead of analysts’ expectations of 0.4 per cent growth, and following a strong gain in January, according to ABC. According to the Bureau’s estimates, retailers raked in AU$24.06 billion worth of sales in February.

Data on the ANZ job advertisements turned out disappointing, however. The ANZ survey showed that job advertisements fell in March for the first time in nine months as both online and newspaper vacancies declined, according to The Sydney Morning Herald. Advertisements were down 1.4 per cent month on month with internet advertising declining 1.3 per cent, while newspaper ads fell 3.6 per cent. "Despite declining slightly in March, job advertisements remain elevated," said ANZ chief economist Warren Hogan. "This follows two months of slowing growth at the start of 2015. We will monitor in coming months, but this may suggest that peak growth in job advertisements has now passed."

The Australian dollar gave up some of its gains owing to the RBA’s decision to keep interest rates on hold. At 07:00 this morning (AEST), the local unit was trading at 76.35 US cents, down from 76.93 US cents yesterday. Yesterday afternoon, it touched a high of 77.12 US cents after the RBA’s decision but started to correct in the overnight session because the bank said it may still cut the rate in the coming months.

On Wall Street, stocks closed lower after the US dollar resumed its upward march, threatening the profitability of the country’s multinational businesses. The U.S. dollar index, which measures the greenback against a basket of currencies, rose 1.22 percent on Tuesday, according to Reuters. The Dow Jones Industrial Average fell 5.43 points, or 0.03 percent, to 17,875.42, the S&P 500 lost 4.29 points, or 0.21 percent, to 2,076.33 and the Nasdaq Composite dropped 7.08 points, or 0.14 percent, to 4,910.23.