ASX poised to rise on lukewarm Royal Commission Report

Stock Markets

Australian shares are poised to open higher today and extending yesterday’s bank rally on a lukewarm banking royal commission report. The report stopped well short of investor fears of forcibly enforcing reform in the sector, thus causing a rally in bank stocks as their prices correct after a period of relentless short selling pressure throughout the sector. The big four banks: CBA, ANZ, NAB and WBC closed up 4.69%, 6.46%, 3.91%, and 7.30% respectively yesterday and are likely to continue to rally over the week.

Yesterday’s RBA monetary policy decision indicated that the RBA will be leaving the official interest rates on hold at 1.5% pressured by low inflation, stubborn wages growth and a softening economy. The decision came following the central bank cutting its annual economic growth forecast to around 3% from 3.5% and highlighting that the downside risks to the economy had increased.  Economists speculate that as the economic outlook continues to deteriorate the RBA will be forced to further downgrade their forecasts which will prompt the Bank to lower interest rates before the end of 2019.

Wall Street’s main benchmarks closed in positive territory, lifted by strong performance in technology and consumer discretionary stocks. The Dow Jones, S&P 500 and NASDAQ 100 all closed up overnight, gaining 172.15 (+0.68%), 9.87 (+0.36%) and 63.56 (+0.91%) points respectively.

ASX200 futures are currently up 24.0 points. 

Today’s news releases: RBA governor Lowe speaks at midday

Commodities and Currencies

Brent crude prices are experiencing a small retrace after hitting a recent high of $US63.73, falling 0.7% to $US62.10 a barrel.

Iron ore prices continued their rally following another unfortunate tailings dam disaster at a Vale-owned mine in Brazil. Iron ore is currently flat at $US85.53 per tonne. Today Vale announced that it’ll be temporarily halting some operations at its Brucutu mine (produces about 30 million tonnes of iron ore per year) in compliance with a Brazilian Court order issued to help improve safety. As speculated Vale is facing stricter regulations following the tailings dam collapse, which could potentially cause a large iron ore supply shock and consequently lift iron ore prices.

The spot price of gold is down 0.43% and is now hovering around US$1316.45.

The AUD is currently marginally up 0.1% to US72.34¢, rebounding after it fell from US72.14¢ to US71.95¢ on yesterday’s worse than expected December retail sales results which showed a decline in consumer spending. 

This article was written by Mithun Fernando – Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via mithun.fernando@rivkin.com.au or by phoning +612 8302 3633.