Australian Stock Market Report – Afternoon 8/6/13

EVENING REPORT
(4.30PM AEST)

As expected by nine out of 10 forecasters, the Reserve Bank (RBA) decided to cut interest rates by 25 bps to 2.5 per cent today. This makes it the very first rate cut by the central bank during an official election campaign period.

Commonwealth Bank (CBA), National Australia Bank (NAB) and the Bank of Queensland (BOQ) cut their variable mortgage rates by 25 bps. Westpac (WBC) cut its variable rate by 28 bps.

In the accompanying statement the central bank said that the "...Australian dollar has depreciated by around 15 per cent since early April, although it remains at a high level." In fact, our dollar is still around US15 cents higher against the greenback than the longer-term (20-year) average.

CommSec's Chief Economist, Craig James said that "There was one subtle change in the wording of the accompanying statement. Rather than leaving scope for further rate cuts, the Reserve Bank now says it is happy to wait for a while before acting again. It is our belief that the economy will pick up after the election. The Reserve Bank is also waiting to see what happens post-election."

The profit reporting season continues, with a few larger companies issuing their earnings today. Inner ear implant maker, Cochlear (COH) more than doubled its full-year profit between July 2012 and June 2013 to $132.6 million. Its bottom line was hurt badly in the previous year by a product recall which cost it somewhere in the order of $100 million. A $1.27 dividend per share, payable on September 19 was also announced. COH shares rose 1.44 per cent.

The major banks all ended in the red today (slightly), while the major miners were mixed. Iron ore producer, Fortescue (FMG) gained by 2.1 per cent, while BHP Billiton (BHP) slipped by 0.36 per cent.

The Australian dollar reacted following the rate cut, actually shooting higher from US89.2 cents to a high of US89.9 cents. Some participants perhaps were hoping for a bigger cut.

At the close, 1.61 billion shares had changed hands, worth $4.2 billion. 423 stocks were higher, 466 ended in the red while 331 finished unchanged.

Looking ahead, Italian preliminary GDP for the previous quarter, Italian industrial production and German factory orders will be issued between 6pm and 8pm (AEST).

In the US tonight, international trade for the month of June, weekly data on chain store sales and FOMC member, Evans will be speaking at 3am (AEST).

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