Too sombre to party: ASX declines after RBA’s cautious rate cut

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The numbers

The Australian sharemarket extended its losses on Tuesday afternoon, dragged down by energy stocks and banks, after the Reserve Bank lowered interest rates for the first time in more than four years but warned investors not to expect more cuts over the coming months.

RBA Governor Michele Bullock addressed the media on Tuesday.Credit: Bloomberg

The S&P/ASX 200 closed 56.10 points, or 0.7 per cent, lower at 8481 points, with all 11 industry sectors in the red except for healthcare. The Australian dollar traded mostly unchanged at 63.55 US cents. The market losses come after the ASX shed 0.2 per cent on Monday.

The lifters

Mining giant BHP rebounded from its early losses and closed 0.4 per cent higher, defying the gloom in the market. The nation’s largest miner cut its interim dividend by 30 per cent to US50¢ (79¢) as its profits fell more than 20 per cent amid softer Chinese demand for iron ore. Yet while iron ore was under pressure, investors noted its rising profits generated from copper and potash.

Biotech CSL sent health stocks higher, making them the only sector in the green as it rose 2.4 per cent.

Investment platform Hub24 climbed 4.6 per cent after saying its first-half profit jumped 40 per cent to $42.6 million and flagging “strong growth and increasing profitability” as it raised its dividend by 30 per cent.

Business-focused bank Judo Capital rose 8.5 per cent, after it reported net profit rose to $40.9 million for the December half, an increase of 70 per cent compared with the June half. The result, which beat market expectations, was helped by lower expenses for impaired loans.

The laggards

The big four banks extended their early declines after saying they would pass on the rate cuts to mortgage holders in full and cut their variable interest rates by 25 basis points. CBA – the nation’s biggest lender and the biggest stock on the ASX – was down 1.4 per cent. National Australia Bank lost 2.5 per cent, Westpac 3 per cent and ANZ Bank 1.8 per cent.

Shopping centre owners Scentre and Vicinity each lost 1.3 per cent. Consumer-discretionary stocks also declined, with Bunnings and Officeworks owner Wesfarmers down 1.4 per cent and electronics retailer JB Hi-Fi down 3.5 per cent.

But it was the energy sector that led market losses as oil and gas giant Woodside slumped 1.5 per cent, falling for a second day after a trading update on Monday suggested a fall in dividends. Among the bad surprises in the update were cost projections for restoring fields of up to $US1 billion, “more than double” what investors had been expecting, said RBC Capital Markets analyst Gordon Ramsay.

Coal miners also traded lower, with Yancoal down 1.8 per cent, Whitehaven Coal losing 5 per cent and New Hope Group falling 4.5 per cent.

The lowdown

The RBA cut the cash rate by 0.25 percentage points to 4.1 per cent, which was widely anticipated by markets and the major banks after more than a year of rates being on hold at 4.35 per cent. However, it warned that the outlook was uncertain, and its board remained “cautious on prospects for further policy easing”.

“The forecasts published today suggest that, if monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range,” it said.

“The board’s assessment is that monetary policy has been restrictive and will remain so after this reduction in the cash rate.”

Speaking to reporters after the rate cut, RBA Governor Michele Bullock stressed that the decision to lower rates “does not imply that further rate cuts along the lines suggested by the market are coming”.

Given these comments, AMP chief economist Shane Oliver said that “it doesn’t look like the RBA will be rushing into another rate cut just yet”.

“The RBA’s cautious guidance is understandable as it’s still too early for the RBA to declare ‘mission accomplished’,” he wrote in an analysis for investors.

Citing Australia’s strong jobs market and the low Australian dollar as risks for inflation, along with the uncertainty around Trump’s tariffs, the market veteran predicted the central bank will keep rates on hold at its next meeting in April, but cut again in May and August.

In Europe on Monday, markets were boosted by defence stocks as investors priced in the likelihood of increased military spending in the region, following growing US pressure. Wall Street was closed on Monday for a holiday.

The pan-European STOXX 600 index ended up 0.5 per cent higher at 555.42 points, its highest-ever closing level, with the aerospace and defence index leading sectoral gains with a 4.6 per cent jump, its biggest one-day jump since Russia invaded Ukraine in February 2022.

The blue-chip FTSE 100 closed 0.4 per cent higher, while Germany’s DAX jumped by 1.3 per cent, Britain’s FTSE 100 gained 0.4 per cent, and France’s CAC 40 added 0.1 per cent.

Overnight, shares of European defence companies such as Italy’s Leonardo gained 8.1 per cent, Sweden’s Saab jumped 16.2 per cent and Britain’s BAE Systems advanced 8.9 per cent, while German conglomerate ThyssenKrupp, which is looking to spin off its warship division TKMS, soared 19.8 per cent to its highest in more than a year.

Head of the EU executive Ursula von der Leyen also said the European Commission will propose exempting defence from EU limits on government spending, at a time when US President Donald Trump has asked European members of security group NATO to finance their own defence against a potential Russian attack.

European leaders met in Paris for an emergency summit on Ukraine after US officials suggested Europe would have no role in any upcoming talks aimed at ending the conflict with Russia.

Arms maker Rheinmetall’s shares surged 14 per cent, also lifting Germany’s benchmark index by 1.3 per cent to an all-time high.

With Reuters, AP

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