The share market staged its biggest rally in four weeks after the Reserve Bank turned on the spigots to lift the economy out of its pandemic malaise.
Up 1.8 per cent ahead of this afternoon’s announcement, the S&P/ASX 200 extended its rally to 115 points or 1.9 per cent after the bank announced a raft of new measures.
RBA goes hard
The key elements of the central bank’s five-pronged attack were:
- Cash rate: cut from 0.25 per cent to a record low 0.1 per cent.
- Bonds: target on the yield for three-year government bonds reduced to 0.1 per cent.
- Lending: interest rate on new drawings under the RBA’s Term Funding Facility reduced to 0.1 per cent.
- Inter-lender interest rates: reduced to zero.
- Quantitative easing: RBA to buy $100 billion of federal and state government bonds maturing in five to ten years. Purchases to be made over the next six months.
“The Board views addressing the high rate of unemployment as an important national priority,” Governor Philip Lowe said. “Today’s policy package, together with the earlier measures by the RBA, will help in this effort.”
Lowe reiterated the board’s commitment to keep the cash rate at a record low for at least three years and left the door open for further quantitative easing if needed.
“The Board will keep the size of the bond purchase program under review, particularly in light of the evolving outlook for jobs and inflation,” he said. “The Board is prepared to do more if necessary.”
The dollar eased 0.24 per cent to 70.34 US cents from around 70.55 US cents before the announcement.
What moved the market
Cash currently sitting in bank accounts earning next to nothing in interest may flow towards the stock market, according to ThinkMarkets Market Analyst Carl Capolingua.
“Cash stockpiles are at record highs as Australians have saved in earnest through the crisis,” he said. “Stocks are going to look even more tempting from a relative yield perspective. Those sitting on cash will have to make the tough decision to get off the fence and take a little more risk in stocks. I think we’re sowing the seeds here for a big rally into the end of the year – assuming of course we don’t get any nasty surprises on the Election tonight. But that’s a pretty big ‘if’.”
Sentiment was helped by a rebound in US stocks overnight from Wall Street’s worst week since March. The S&P 500 rallied 1.23 per cent, helped by polling showing Joe Biden holds a ten-point lead.
US index futures continued to advance on hopes a clear winner tonight will avert weeks of uncertainty and acrimony. S&P 500 index futures rose 11 points or 0.3 per cent. Dow futures put on 153 points or close to 0.6 per cent.
Trading volumes here were impacted by a Victorian holiday for the ‘race that stops a nation’.
Energy stocks rocketed off four-week lows amid market speculation that the recent slump in oil will force the Organization of the Petroleum Exporting Countries and its allies to postpone planned production increases. Oil Search climbed 7.5 per cent, Santos 6.5 per cent and Woodside 5.5 percent.
With interest rates set for new lows, yield stocks were in vogue for a second day. Stockland rose 5.8 per cent, Scentre Group 6.1 per cent, AGL Energy 1.5 per cent, Telstra 1.1 per cent and APA Group 1 per cent.
Traders took advantage of weak trading volumes to pick up some of the biggest losers from the pandemic. Travel agent Webjet soared 8.7 per cent, Flight Centre 7 per cent, Star Entertainment 6.5 per cent and SkyCity Entertainment 6.4 per cent. Qantas gained 3.7 per cent.
Supply-chain logistics firm Brambles climbed 5.7 per cent following a profit upgrade. The company raised its guidance to the upper end of previous guidance after increasing first-quarter sales revenue by 5 per cent.
At the top end of the market, Macquarie Group put on 2.7 per cent, BHP 2.6 per cent, Rio Tinto 2.5 per cent, CSL 2.1 per cent, Wesfarmers 1.8 per cent, CBA 1.4 per cent, ANZ 1.1 per cent and NAB 0.4 per cent. Westpac shed 0.6 per cent
Fewer than one in twenty stocks on the ASX 200 declined during a bullish session as the market headed towards tonight’s uncertain waters.
Exporters came under pressure following a South China Morning Post report that China intends to ban Australian copper and sugar imports this week. Copper giant Sandfire Resources said it was aware of the report and well positioned to divert production to other markets. The company’s share price sank 7 per cent.
Other exporters appeared to be collateral damage amid fears China will broaden its one-sided trade dispute to other sectors. Treasury Wine Estate fell 3.1 per cent, United Malt Group 0.7 per cent and A2M Milk Company 0.6 per cent.
Online jobs marketplace SEEK eased 0.9 per cent to its weakest close in four weeks following allegations last week that its Chinese platform featured fake job listings.
A strong session on Asian markets saw China’s Shanghai Composite rise 1.1 per cent, Hong Kong’s Hang Seng 2 per cent and Japan’s Nikkei 1.4 per cent.
Oil trimmed overnight gains. Brent crude was last down ten cents or almost 0.3 per cent at $US38.87 a barrel. Gold trimmed its gain to 20 cents or less than 0.1 per cent at $US1,892.70 an ounce.
Hot today and not today
Hot today: Beach Energy (ASX:BPT) jumped 7 per cent on news it will acquire Senex Energy’s (ASX:SXY) Cooper Basin portfolio of assets for $87.5 million. The company said the acquisition will make it sole operator in the basin’s Western Flank region in South Australia. Managing Director Matt Kay said the transaction would be immediately earnings accretive for shareholders. The company expects to save around $5 million in operating costs in the first year. Senex shares gained 7 per cent.
Not today: Isentia Group (ASX:ISD) lost almost a third of its market value after revealing a ransomware attack will cost the media monitor at least $7 million. Operations were severely compromised as the incident last week disrupted the company’s software-as-a-service offering. The company said its Mediaportal platform was operational, but some services remained affected. The share price slumped 32.4 per cent to a seven-month low.