Australian Stock Market Report – Afternoon 6/4/13

AFTERNOON MARKET REPORT

(17:00 AEST)

Having fallen by more than 6% in recent weeks, the selling that has defined the period dried up on Tuesday and the ASX200 finished with a gain. The durability of the improvement remains the main question as we move towards the blue ribband event of the week, the US Non-Farm Payroll Report due on Friday.

The local index finished within sight of its best levels of the day. One of the interesting aspects of the day was the synchronised improvement of resource and bank stocks. Recent weeks have seen expensive bank stocks used as funding source for the purchase of cheapened resource stocks. Bionic ear maker Cochlear was being watched carefully following its 18% decline on the heels of its profit warning on Monday. Today the stock rose more than 5%
The feature in terms of corporate news was Billabong (BBG) losing almost 50% after announcing the conclusion of discussions with Sycamore Partners. Attention will now turn to asset sales and refinancing. Adding to the disappointment for investors was downgraded earnings guidance. BBG expects EBITDA of $67m-A$74m compared to an earlier estimate of $74m-$85m.

Eyes were trained on the RBA today being the first Tuesday of the month. There were few surprises when the central bank left rates unchanged at 2.75%. Even though the RBA regarded current policy settings as "appropriate for the time being", the door was kept open to further easing, saying: "the Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand"

A significant addition to the RBA's accompanying statement was its view on the recent fall in the currency. Importantly the Bank doesn't see the decline in the Aussie as being a substitute for another rate cut. The statement indicated: "the exchange rate has depreciated since the previous Board meeting, although, as the Board has noted for some time, it remains high considering the decline in export prices that has taken place over the past year and a half".

CommSec continues to expect another rate cut of 0.25% in August.

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