Weekly wrap: looming rate cuts propel ASX 200 to three month high
WEEKLY MARKET REPORT
Expectations of interest rate cuts to come helped propel the Australian share market to a three-month high.
With inflation falling back into the RBA target zone in Australia, investors are betting that the Reserve Bank and also the US Fed will be looking to cut official interest rates sooner rather than later.
By the close of trade on Friday the ASX index was up an impressive 0.6% or 46.2 points to 8343.7 points.
That means the index has risen for eight straight days – up 1.4% for the week – which means the Australian market is now only 2.8% off its February 14 high, despite the sharply negative market reaction to US President Donald Trump’s April 2 Liberation Day tariffs.
By the close seven of the 11 industry sectors were positive with interest rate sensitive real estate stocks leading the way.
Weaker US data pushes share market up
Weaker US economic data also played into the market rally, with Australia tracking the S&P 500 higher after US producer prices declined by the most in five years and April retail sales data highlighted soft consumer demand.
Even closely watched 10-year US Treasury yields co-operated, sliding 10 basis points.
Among the stronger real estate shares, Goodman Group (ASX: GMG) added 2.9% to $31.82 and Vicinity Centres (ASX: VCX) was up 2.2% to $2.34.
Commonwealth falls off record
One of the more interesting trades of the day was the Commonwealth Bank (ASX: CBA) with its shares touching a fresh record of $172.71 a share before closing 0.1% lower at $169.66.
Miners were generally stronger, with gold stocks in particular jumping despite some weakness in the gold price.
Miners on the rise
Gold sector leaders Evolution Mining (ASX: EVN) and Newmont Corporation (ASX: NEM) both jumped 3.6%, closing at $7.87 and $77.42 respectively.
The big iron ore miners were up as well with BHP (ASX: BHP) shares up 1.4% to $39.72, Rio Tinto (ASX: RIO) shares up 0.9% to $121.05 and Fortescue (ASX: FMG) shares up 1.3% to $17.00.
There was no shortage of corporate news pushing share prices around with shares in Dicker Data (ASX: DDR) down 0.1% to $8.49 before the company announced co-founder and chief executive David Dicker was stepping back from the business.
Dexus could be a forced seller
It was a negative day for shares in real estate group Dexus (ASX: DXS) which fell 1.1% to $7.23 after the board of Australia Pacific Airports Corporation alleged it had breached confidentiality arrangements.
If that turns out to be the case, Dexus could be forced to sell its stake in the tightly held Melbourne Airport.
In some positive news, shares in AI and data company Appen (ASX: APX) jumped by an impressive 18.7% to $1.46 after it released a full-year revenue target of between $235 million and $260 million and a target for “positive” underlying earnings.
Shares in big insurer Insurance Australia Group (ASX: IAG) slipped 2.8% to $8.65 after it acquired the insurance operations of West Australian RAC in a 20-year deal for $1.3 billion.
Small cap stock action
The Small Ords Index slipped 0.48% for the week to close at 3178.2 points.
ASX 200 vs Small Ords
The week ahead
The big action to watch this week is the meeting of the Reserve Bank Board on Monday and Tuesday, with indications firming that official interest rates will be cut from the current 4.1% to 3.85%.
Most investments are based on the risk-free cost of capital represented by the RBA cash rate target so any decrease will be keenly awaited by investors and those with housing loans.
More rate cuts to come
Lower interest rates would also be an important signal that the RBA board believes inflation is being brought under more sustainable control which would also add to business and consumer confidence.
At the moment, investors are anticipating another two RBA cuts this year with the expectation being that we will outpace interest rate cuts in the US, with expectations of just two rate cuts there this year.
The RBA will also be releasing its quarterly forecasts for economic growth, inflation, wages and employment which will be required reading for all serious traders.
It is a big week in China with the release of a swag of data around retail sales, industrial production and employment with expectations of a further 10 basis point loan prime rate cut from the People’s Bank of China as it continues to react to the threat of a trade war.
Back in Australia, the confession season continues as a bunch of companies hold annual meetings and quarterly updates, with the potential to move share prices around.