Business News

No rate cut for you!

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by Peter Switzer

The Reserve Bank (RBA) meets today but as the Soup Nazi from Seinfeld might say, “No rate cut for you!” We should not expect an interest rate cut and you can blame foreigners for it. Yes, those damn Yanks and Europeans are actually making the right noises, which has created the rally and this calms the RBA’s nerves — so no rate cut.

Yes, it’s up, but I’m not sure if we’re away. That said I still like what I see with Wall Street putting on the first positive Monday in 10 weeks, however, this is only a matter of history. The crucial point is that the last week’s gains are not under challenge at this stage and the Yanks are at three-month highs. Our S&P/ASX 200 index is at the best level since May 14 where we were at 4297. We finished yesterday at 4272.6.

Helping Wall Street is a revised view that the European Central Bank (ECB) will do something meaningful to bring down the interest rates that Spain and Italy are paying on their sovereign bonds.

Wall Street gains

The Dow ended up 21.34 points or 0.16 per cent, though there was some late selling that could affect our share-buying enthusiasm today. The S&P 500 finished up 3.24 points or 0.23 per cent at 1394.23.

These are all good steps out of the persistent bear market towards the eventual bull market that will take over. However, Europe still remains an unreliable issue that could hurt market desire to buy stocks and then the Yanks have the fiscal cliff along with an election.

I suspect a sell-off will happen to test this rally but if the leaders of the EU and the USA can avoid old bad habits, then stocks will grind higher.

As one US smarty put it, it’s the four Es — Europe, earnings, employment and the election — but I would add another E for emerging economies, in which I would include China.

Positive earnings

On the earnings front, 400 S&P 500 firms have reported and 67 per cent beat expectations, which is a nice positive sign to add to the ever better looking economic picture I have been painting.

Thomson Reuters says only 41 per cent beat on revenue expectations but this is understandable given the economic slowdown we have seen in the USA over the past six months.

Another cut needed

As one of the country’s greatest critics of the RBA, I reckon they are close to being right on rates but I do hope we see another cut over the next few months to really turn around business confidence which is lagging the spike in consumer confidence we have seen in the past few months. That said, it is still in negative territory and below its historical trend level.

But for now, “it’s no rate cut for you and me!”

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Tuesday, August 07, 2012

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