RBA Surprisingly Cut Interest Rate

Published by Filipe R. Costa on Tue, 02/10/2012 - 09:54
RBA pressure

Daily Market Commentary for October 2: Good news coming from manufacturing helped the indices yesterday as ISM came better than anticipated. The RBA cut its key rate to 3.25%.

The US ISM Manufacturing index was reported at 51.5, showing an expansion for the first time in three months. Analysts were pointing to 49.7 but the numbers surprised positively and helped the risk on trades. The main indices were pushed higher and the Dow is currently trading above 13,500 again.

Construction spending declined 0.6% in August against expectations signalling how difficult it will be to recover the sector. Even though the FED has been trying to put the sector on rails again, truth is that it has been ineffective and overall the sector is still much depressed.

The Reserve Bank of Australia (RBA) cut its key interest rate from 3.50% to 3.25% overnight. The slowdown in China, the drop in commodity prices and QE3 are the main drivers for the cut. With the FED engaging in so much quantitative easing, the effect has to be to force other central banks into the same liquidity operations.

This morning markets continue to edge higher with investors willing to embrace the extra risk. I’m still not that bullish as poor economic data is not compatible with the current index levels, especially in the US, a market that has been artificially boosted by monetary easing. Downside risks are still too high.

The Aussie is in downtrend as the prospects of future cuts by the RBA are weighting negatively.

Name Last price Close Price % 5-Day % YTD %
DAX (Xetra) 01/10/2012 7326.73 1.53 -1.17 24.22
Nasdaq 100 Index 01/10/2012 2794.28 -0.18 -1.75 22.67
S&P 500 01/10/2012 1444.49 0.27 -0.85 14.86
Gold (LBM) $ 01/10/2012 177960 0.33 0.96 13.57
Dow Jones Industrial Average 01/10/2012 13515.1 0.58 -0.32 10.62
Euronext 100 01/10/2012 653.96 1.8 -1.49 10.31
CAC 40 01/10/2012 3434.98 2.39 -1.78 8.71
FTSE 100 01/10/2012 5820.45 1.37 -0.31 4.45
Nikkei 225 01/10/2012 8796.5 -0.83 -3.01 4.04
GBP/USD - US $ per £ 01/10/2012 1.6133 -0.2 -0.57 3.88
Crude oil (Brent) Composite 01/10/2012 11117 -0.2 2.27 3.5
AUD/JPY - JPY per Australian $ 01/10/2012 80.864 0 -0.36 3.03
AUD/USD - US$ per Australian $ 01/10/2012 1.0362 -0.16 -0.57 1.52
USD/CHF - Swiss Fr per US$ 01/10/2012 0.9384 -0.15 0.39 0.09
EUR/CHF - Swiss Fr per Euro 01/10/2012 1.2094 0.08 -0.02 -0.47
EUR/USD - US$ per Euro 01/10/2012 1.2889 0.23 -0.4 -0.5
EUR/GBP - £ per Euro 01/10/2012 0.7989 0.41 0.16 -4.12
Crude oil (Light Sweet) Composite 01/10/2012 9236 0.36 0.31 -6.71