Global equities lower, Aussie dollar rises after rate cut, TPG matches M2 bid for iiNet in cash, ASX futures 49 points lower

After immediately selling off, the Australian dollar about-faced less than five minutes after yesterday's Reserve Bank of Australia rate cut announcement and began to rally. Similarly, the ASX 200 shot up about 45 points following the announcement and then sold off strongly - the ASX 200 traded a 100-point range for the day. Why the counter-intuitive move? In Reserve Bank Governor Glenn Stevens's previous statements issued on 3 March and 7 April, he said, "Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with target." This line was removed from yesterday's statement and the market has quickly interpreted that as being a signal that lower rates from this point onward are not likely. I note that the cash rate curve is still pricing in a 50%+ chance of lower rates toward the end of 2015 - but that's a long way away, and anything could happen between now and then. For now, investors and traders should predicate their strategies on the basis that 2.00% is the terminal rate in Australia and we are no longer witnessing a Reserve Bank with an 'easing' bias.

Today's second chart plots the story of the iiNet takeover thus far. TPG announced this morning that it will raise its bid to an effective cash price of $9.55 ($8.80 plus 75c dividend) plus franking to remain in the game, after its previous offer was trumped by M2 Group's counter bid. TPG has offered the minimum required to remain relevant to iiNet's board and shareholders, so this is really turning into a poker match now - we will now wait and see what happens given that the iiNet's board and its shareholders are not exactly going to be swept off their feet by this latest offer. Rivkin very comfortably sold half its holding yesterday at $10 and we may look to re-enter the situation fully or let our remaining 50% holding run if the market shows disappointment at the latest offer. Let's see - more details of the offer will be made available today. Rivkin Local membership should watch for further correspondence from Shannon Rivkin.

After a couple of Chinese public holidays, the spot iron ore market opened back up and prices firmed a couple of percent to US$58.70 per tonne. We should see some moderately healthy trading in iron ore stocks today, which, unlike the finance sector, won't be too upset about the prospect of a cash rate low of 2.00%. Today's last chart shows the US dollar index, which is holding steady. Without a resumption of the medium-term US dollar rally we saw heading into mid-March 2015, the Australian dollar is going to struggle to grind lower to the US 75c and below levels that Glenn Stevens so desperately wishes for. Let's hope that Joe Hockey has more than a big smile and a "Go out and spend" catch-cry for us in the Federal Budget next Tuesday - it seems that the Government will get no more assistance from the RBA.



Today‚Äôs charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to open a Rivkin Trader account now.

Upcoming economic announcements: Australian new home sales at 11am and retail sales at 11:30am, HSBC Chinese PMI at 11:45pm, Eurozone retail sales at 7pm, US ADP employment report at 10:15pm, all Sydney time.


This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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