The Australian sharemarket was travelling well for most of the
session, until the Reserve Bank (
) decided to keep interest rates on hold at 4.25 pct. The All
Ordinaries index (XAO) fell 0.5 pct or 19.7 pts to 4344.9. Most
sectors lost ground following the RBA decision however the energy
sector, the telcos and healthcare companies managed to end the
The reporting season has kicked off this week and there were a
few companies releasing their results throughout the day.
), the manufacturer of inner ear implants announced its half-year
profit this morning (the six months between July to December
The company posted a profit of $80.1 million prior to
significant one off costs. When you take into account the $100
million (after tax) costs of a product recall back in September
last year, the company has posted a $20.3 million loss over the
COH's revenue was $387.4 million and there was a 9 pct fall in
product sales to 10724 over that period. The company also
announced an interim dividend of $1.20 a share which is scheduled
to be paid to investors on March 13th.
Profit was a little better than expectations as was revenue.
The declared dividend was 14 pct higher than in the corresponding
period in 2012. One thing which was clear from the result was
that the voluntary recall of one of its main product lines, the
CI500 implant range has hurt the company's bottom line. COH
shares were down 6.2 pct prior to today in the 2010 calendar year
while COH shares rose 7.59 pct or $4.41 to $62.52 today.
The mining sector was worst hit today, with RIO Tinto (
) down 1.78 pct or $1.29 to $71.01 while BHP Billiton (
) lost 0.81 pct or 31 cents to $37.90.
Three of the four major banks lost ground today, with National
Bank (NAB) by far the worst performer following a disappointing
trading update. Macquarie Group (MQG) fell by 0.77 pct or 20
cents to $25.90 today after announcing a significant profit
downgrade of as much as 25 pct. This was partly blamed on
difficult global market conditions.
All eyes were firmly fixed on the Reserve Bank of Australia (
) and its rates decision out this afternoon. It was widely
expected that interest rates would be cut by 25 bps (basis
points) or 0.25 pct today to 4 pct. The market was factoring in a
76 pct chance of a rate cut today. The RBA surprised all those
involved with the market by keeping interest rates unchanged.
Immediately following the decision the Australian dollar (
) rose strongly from US107 cents to US108 cents. The RBA meets on
the first Tuesday of each calendar month (except in January) to
make a decision on interest rates. The decision is announced at
2.30pm (AEDT) and can have a significant impact on both markets
and currencies, particularly if the actual result is contrary to
market expectations. The bank also always issues an accompanying
statement with the rates decision which is freely available on
the central bank's website (www.rba.gov.au).
In the first paragraph of the statement, Chairman Glenn
Stevens acknowledged that the global economy is struggling
however said that he sees sign of improvement in the European
With rates remaining at 4.25 pct, Australia has some of the
highest interest rates of any advanced economy. The official
interest rates in Europe are at 1 pct while the Bank of England
has rates at 0.5 pct. This gives the RBA more room to move on
rates if necessary.
Commsec Economist, Craig James said that "The Reserve Bank
clearly maintains an easing bias - a bias to cut rates. The key
phrase of the statement was: "the Board judged that the setting
of monetary policy was appropriate for the moment. Should demand
conditions weaken materially; the inflation outlook would provide
scope for easier monetary policy." Perhaps if the European
situation deteriorates markedly, the next decision won't be
whether to cut rate by 25 basis points, but rather 50 or 75 basis
Mr James continued by saying that "Despite the inaction on
rates, there are still choices for those paying off home loans
and those looking to enter the housing market. The 3-year fixed
home loan rate stands at 6.35 per cent, around 1 percentage point
below the variable rate. If you expect banks to cut the variable
rate by more than a percentage point over the next few years then
you would stick with the variable rate. But for those struggling
with repayments or those looking to unleash some spending power,
there are clearly options available."
The latest monthly statistics on overseas tourist arrivals and
departures was also released today. The number of permanent
settlers entering Australia hit a 34-month high in December.
There was a 0.9 pct rise in the number of tourist departures
while the number of tourists entering our border rose by a very
modest 0.1 pct over the month.
Commsec's Chief Economist, Craig James said that "Aussies are
still flocking abroad, encouraged by the strong dollar. In 2011 a
record 7.8 million visits were recorded, far in advance of the
5.88 million visitor arrivals in the year. But it is by no means
doom and gloom for Australia's tourism industry with arrivals
from China soaring 19 per cent over 2011 while Indonesian
tourists rose by 13 per cent. The tourism sector clearly needs to
be focussing on the rising middle classes of Asia. Not only are
incomes rising in the region but the potential number of tourists
is particularly exciting for the industry."
In the region today, the New Zealand sharemarket traded for
the first time this week following yesterday's national holiday
(Waitangi Day). There was a lack of market moving economic data
out today however the latest leading indicators index for
December was released at 4pm (AEDT). This index is calculated by
putting together 11 separate economic indicators to measure the
direction of the Japanese economy.
Out of Europe last night, the latest report on factory orders
was released at 10pm (AEDT) and ended better than expected.
Rising purchase orders signals that manufacturers will increase
activity as they work to fill in orders.
In Europe tonight, France's latest trade balance will be
released. The market is expecting a deficit of around €5.2
billion to be recorded for December. The trade balance measures
the difference between imported and exported goods over the
There was no major market moving economic data out last night
in the U.S. Tonight will also be relatively quiet however Federal
Reserve Chairman, Ben Bernanke will be testifying on the economic
outlook and federal budget situation before the Senate Budget
Committee in Washington DC. This will be released at 2am (AEDT)
tomorrow morning. Chairman Bernanke's comments tend to be
listened to carefully for hints of potential future actions of
the central bank. The U.S Federal Reserve is the American
equivalent to Australia's Reserve Bank.
The volume of shares traded came in at 1.83 billion today,
worth $4.6 billion. 445 shares were up, 517 finished weaker and
374 ended unchanged.
At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24
futures contract is down 0.21 pct or 9 pts to 4247.
Due to daylight savings, most major European markets are now
trading between 7pm (AEDT) and 3.30am (AEDT). Futures in Europe
are pointing to a slightly weaker start to trade tonight.
Dow Futures are currently higher; indicating that U.S stocks
could open a touch stronger tonight. American markets open at
1.30am (AEDT). Due to the Americans going back an hour on
November 5 last year, U.S markets will be trading between 1.30am
(AEDT) and 8am (AEDT).
Turning to currencies, the Australian dollar (
) buys US108 cents (around a six month high) and €82.4 cents. The
AUD is currently trading at £68.3 cents. The AUD rose very
strongly against a basket of currencies immediately following the
RBA's rates decision.
Steven Daghlian, CommSec Market Analyst
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