Article / 03 February 2015 at 7:10 GMT

Australian Market Wrap: RBA rate cut sends ASX 200 to new highs

Trading Desk / Saxo Capital Markets
Australia
  • The S&P/ASX200 index reached a seven-year high closing the day at 5707 
  • Energy, materials and financials led the benchmark gains again
  • The Aussie dollar sold off more than 180 pips to make a fresh low of 0.7650

By Saxo Capital Markets Australia

Untitled
 All figures are Australian dollars unless otherwise specified

Local markets rallied today driven by an unexpected rate cut by the Reserve Bank of Australia. The S&P/ASX200 index reached a seven-year high closing the day higher by 82 points or 1.46% to 5707. Nine sectors out of 10 closed higher with energy, materials and financials leading the benchmark gains yet again.

Oil companies rallied again today as the price of oil lifted overnight with Oil Search rising by 4.39% to $8.33; Woodside Petroleum lifted 3% to $35.69 and Santos gained 2.62% to $8.21.

Major mining companies also posted strong gains as BHP Billiton rallied 3.55% to $30.65, Rio Tinto rose 1.93% to $58.58 and Fortescue Metals added 2.6% to $2.37.

In other blue-chip stocks, Telstra Corporation (our largest telco), after losing 5 cents in intraday trading, rocketed higher following the rate cut as investors piled into the stock to chase their dividend yield. For the day, Telstra gained 14 cents or 2.14% to $6.67. 


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Telstra was just one of today's stocks that benefited from news of a rate cut. Photo: iStock

Retailers also received a lift as a result of today's rate cut however Myer Holdings was the standout gainer rising 4.82% for the day to $1.63. Our desk had a recommendation to enter a long position on this stock this morning on a break-out at a level of $1.595. MYR closing near its highs is expected to trigger our first exit point of $1.695 in a day or two.

Beach Petroleum (BPT) who was yesterday’s greatest advancer, announced late last night that Seven Holdings (SVW) had acquired a strategic position of 13.79% in the company. With rumours that SVW was positioning itself for a takeover of BPT, who has suffered a depressed share price, BPT propelled 15.59% to $1.1675.

Not surprisingly with the energy sector up 4.1% within the day, the next two gainers were Worley Parsons (WPL) and Origin Energy (ORG). WPL and ORG climbed 6.26% and 5.88% to $10.18 and $11.70 respectively. Energy’s gains were led by Brent oil's 5.8% overnight rally. This now makes it the second day in a row of substantial gains and is attributed to 94 rigs being pulled from the US fields last week. A refinery strike in the US – accounting for 10% of supply – had also entered its second day.

Not far behind was Echo Entertainment (EGP), up 4.96% to $4.23, which relished the RBA interest rate cut. 

Navitas (NVT) today released its interim results. Despite not reading too badly, the market it seems was expecting much more and sold NVT 9.52% to $4.75. Key financial information included: Total group revenue up 14% to $480.5m; EBITDA up 13% to $71.1m (excluding $9m goodwill impairment); NPAT (excluding $9m goodwill impairment) up 12% to $40.4m; EPS (excluding $9m goodwill impairment) up to 10.7c and; fully franked interim dividend of 9.4c. As you can see, it was these impairments that the market was most unfavourable to.

After the RBA cut rates by 25 basis points, the Aussie dollar sold off more than 180 pips from the intraday high 0.7833 to make a fresh low of 0.7650. The major support level of 0.7700 was clearly broken and now this level will turn into the resistance level. In the coming days, AUDUSD may retrace temporarily towards this resistance level but more downside pressure is still very likely. 

Today’s RBA statement indicated that AUDUSD has declined noticeably against a rising US dollar over recent months, though less so against a basket of currencies.

The rate cut announcement pushed up the S&P200 by more than 80 points to reach up near the previous swing high of 5682, but it pulled back some of the gains towards the close of the session. Now the sentiment is very positive and we expect the S&P200 to continue its bullish momentum, although the resistance level of 5682 will not be easy to break out so another retracement or choppy price action is expected just below 5682.

– Edited by Gayle Bryant

Australian Market Wrap is compiled by the Sydney trading desk at Saxo Capital Markets

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