Market runs higher with further rate cuts on the cards

15.07 AEST, Thursday 4 October 2012

Market runs higher with further rate cuts on the cards

By Ben Taylor (Sales Trader, CMC Markets)

The Australian market has had a run higher today after the retail spending figure came in worse than expected increasing the expectations of a Melbourne cup day interest rate cut.

The poor Australian retail sales figure comes on the back of terrible manufacturing and service sector PMI results, weak trade data and falling expectations for inflation. Current interest rate futures are predicting a rate cut in November and I tend to agree with them believing there is a high likelihood that the RBA would err on the side of caution and cut rates in November to ensure domestic growth is supported.

The effect of the worse than expected retail sales figure saw the Aussie dollar take a sudden dive before recovering all of its move lower. Despite today’s Aussie dollar rebound I believe risk still remains to the downsize as the RBA shows an easing bias.

Banking stocks have done the majority of the heavy lifting today as they attempt to explain to the public the disconnect between their cost of funds and the Reserve Bank’s cash rate movements. Higher domestic deposits offset the risk of offshore funding and therefore the banks may not feel comfortable dropping rates by the full 25bp when international disturbances have the ability to spike their borrowing costs. Talk of upgrades to some branches and plans to develop new banking applications has excited the sector.
For an interview or further comment from Ben Taylor please call 02 8915 9309.

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