SYDNEY: The Australian sharemarket recovered some deep earlier losses to close slightly weaker, as the prospect of further Reserve Bank easing buoyed sentiment following a surprise rate rise from Westpac.
The market still closed lower for a third straight day as continuing weakness in commodity prices saw the resources stocks drag on the bourse, with energy and mining stocks continuing to decline after a strong last week.
At the 4.15pm (AEDT) official market close, the benchmark S & P/ASX200 index was down 5.6 points, or 0.11 per cent, to 5197.3, while the broader All Ordinaries had shed 4.2 points, or 0.08 per cent, to 5230.4.
It was a volatile day of trade, with the banks under sharp focus following Westpac’s decision to raise its variable mortgage rate by 0.2 per cent.
The move sparked a strong sell-off in the Australian dollar and banking stocks and led many analysts, including Macquarie Securities, to see a rate cut by the Reserve Bank in November as inevitable.
“In our view, the announcement by a major bank of an out-of-cycle 20bp rate hike — for investor and owner-occupier loans — all but seals the deal for a November rate cut from the RBA,” Macquarie Securities economist James McIntyre said.
The Australian dollar fell on the Westpac news, diving towards the US72c level, with Goldman Sachs forecasting two RBA rate cuts in the near future.
“Following the pre-emptive interest rate hike by Westpac, we now see the November rate cut as highly likely and a strong case for a further rate cut in early 2016 can now be made,” Goldman analyst Tim Toohey said.
Further signs of sluggish economic activity in China sent the local sharemarket into recovery mode as investors geared up for the prospect of more economic stimulus from the world’s second-largest economy.
China’s official inflation gauge showed CPI had slowed to 1.6 per cent in the year through September, down from 2 per cent in August. The producer prices index also slowed for the 43rd consecutive month.
“Today’s Chinese CPI essentially guaranteed further cuts to the interest rate and the reserve requirement ratio before the year is out,” IG market analyst Angus Nicholson said.
