SYDNEY: The Australian sharemarket fell on Wednesday as investors interpreted slightly higher-than-expected inflation numbers as another reason for the Reserve Bank of Australia to further delay a rate cut, accelerating a sell-off in the big banks.
Stocks struggled at the open following a weak lead from Wall St on Tuesday night, with mining and energy names falling in sympathy with overnight declines in the prices of iron ore and oil.
The benchmark S&P/ASX 200 index ended the day 35 points, or 0.6 per cent, lower at 5837.5, while the broader All Ordinaries lost 31 points to 5812.8. Regional sharemarkets received better support, with the Japanese benchmark Nikkei index closing above 20,000 points for the first time in 15 years.
Consumer prices rose at their slowest pace in nearly three years in the March quarter, on Australian Bureau of Statistics data, but traders were unsure whether the data was soft enough to trigger a rate cut as underlying annual inflation – excluding food and energy prices – came in at 2.3 per cent, well within the Reserve’s target 2 per cent to 3 per cent range.
That caused the Australian dollar to bounce almost half a US cent to US77.60¢, while shares extended their early losses.
Investors are worried that without an additional rate cut by the RBA there is little to fuel the market, as stock valuations look stretched at current levels.
“Current equity valuations are anticipating a recovery of earnings in the next financial year,” said Contango chief investment officer George Boubouras. “However, the pre-conditions for an earnings recovery over the next 12 to 18 months are lower cash rates, a lower dollar – about US70¢ – by year end and recovery in companies capex [capital expenditure] (investment) intentions.”
