Australian Stock Market Report – Morning 10/24/13

MORNING REPORT
(7.05am AEDT)

The Bank of Canada monetary policy decision resulted in no change to the overnight lending rate which remained at 1.0pct. This was as expected. However, the BoC dropped its previous bias to lift the policy rate. This bias has been in place for a year. In other words the BoC has now moved to outright neutral. Inflation is now expected to remain low for longer, the level of economic activity is also lower than expected, while risks of further weakness in the economy are taking on increasing importance. Rate hikes are not on the agenda any time soon.

European shares snapped a nine-day winning streak on Wednesday, hit by plans for tougher stress test for euro zone banks. The STOXX Europe 600 Bank index dropped 2.1pct on its weakest day in two-months. A crop of weaker earnings also weighed on sentiment. Brewer Heineken fell by 4.5pct after it reduced full-year profit guidance. The FTSEurofirst 300 index fell by 0.6pct with the UK FTSE down by 0.3pct and German Dax both lost 0.3pct. Mining shares in London fell with BHP Billiton down by 1.4pct while Rio Tinto lost 1.3pct.

US sharemarkets fell on Wednesday, on mixed earnings results and a lift in Chinese short-term interest rates. Caterpillar was one of the biggest decliners on the S&P slumping 6.2pct after missing profit expectations and cutting full-year outlook. On the upside Boeing surged 4.9pct after a rise in profit. The Dow Jones fell by 54pts or 0.4pct. The S&P 500 lost 0.5pct while the Nasdaq fell by 22pts or 0.6pct.

US long-term treasuries rose on Wednesday (yields lower) as traders reinforced views that the Federal Reserve is unlikely to taper its bond buying program in the near term. US 2yr yields were unchanged at 0.308pct and US 10yr yields fell by 2pts to 2.496pct.

The US dollar rallied against major currencies on Wednesday after a spike in China´s short-term money market interest rates drove risk aversion. The Euro hit early lows near US$1.3740 before rising to highs near US$1.3795 and ending US trade around US$1.3780. The Aussie dollar fell from highs near US96.60c to around US96.10c, ending US trade near US97.25c. And the Japanese yen traded between 97.55 yen per US dollar to JPY97.15, ending US trade near JPY97.35.

World oil prices were fell on Wednesday after US government data showed a surprisingly large increase in oil inventories. US crude stockpiles rose by more than 5 million barrels in the last week. Brent crude fell by US$2.17 or 2pct to US$107.80 a barrel, while US Nymex fell by US94c or 1pct to US$96.86 a barrel.

Base metal prices fell on the London Metals Exchange on Wednesday. Weakness was driven by news that Chinese banks were tripling write-offs on bad loans and a rise in short-term Chinese money market rates. Gold prices fell from five-week highs on Wednesday. The Comex December futures price lost US$8.60 an ounce or 0.6pct to US$1,334.00 per ounce. The iron ore price fell by US10c to US$133.20 a tonne on Wednesday.

Ahead: In Australia, Reserve Bank Deputy Governor Lowe speaks in Melbourne. In the US, new home sales are released.

[Kick off your trading day with our newsletter]