ASX closes at seven-year high
Domestic and Chinese rate cut fever drove the Australian sharemarket to a seven-year high today.
The S&P/ASX 200 index climbed 30.1 points, or 0.51 per cent, to5958.9, but finished off its high, as expectations for a rate cut at the reserve Bank meeting tomorrow were stoked by another round of weak domestic data.
Miners rallied after the weekend the People's Bank of China became the 22nd global central bank to cut rates this year, but the positive sentiment was not matched in China after the PBOC statement said the adjustment was made to "keep real interest rate levels accommodative to the changing fundamental trends in growth, inflation and employment".
The Shanghai composite index was up 0.3 per cent at the close of the ASX after the PBOC lowered rates by 25 points to 5.35 per cent.
Dalian iron ore futures dropped 0.8 per cent and steel rebar futures used in construction fell 1.3 per cent as markets perceived the rate cut as a technical adjustment and not a break from economic reforms away from infrastructure spending. On Friday spot iron ore rose one per cent to $US63 a tonne.
Westpac economist Huw McKay said China's nominal GDP growth - the sum of real activity growth and price changes - had been tracking under target since 2011 and was the "objective that must be hit on the way to full employment" and debt sustainability.
"A lower growth and inflation trajectory, alongside a higher level of indebtedness demands a re-assessment of the level of the natural rate of interest, on which China's monetary policy will increasingly turn," he said.
In Tokyo the Nikkei index was up 0.3 per cent.
The Australian dollar slipped US0.3¢ to US77.65¢, while government 10-year yields rose 3 points to 2.49 per cent.
Supporting rate cut copes, the AiG performance of manufacturing index fell 3.6 points to 45.4, while business inventories fell 0.68 per cent in the December-quarter to cut about 0.75 percentage points off GDP growth.
"Business cut inventories in Q4, with a focus on cost control, and incomes are weak, with renewed downward pressure from the falling terms of trade," Westpac economist Andrew Hanlan said.
More to come…
