Morning Report Wednesday 4 February 2015
Yesterday I was off the mark by thinking the RBA would delay the inevitable rate cut by a month or two, instead they ran with my observation that this was the most awaited decision in many months – they got exposure! The RBA cut its rate yesterday to 2.25%, the lowest in history, sending equity soaring over 70 points in a matter of minutes. Australian equities are simply looking for a new level of equilibrium / fair value as they factor in lower rates for 2015. Markets are now looking for at least one more rate cut in 2015 and with Australian 3-year bonds touching below 1.8% potentially more. Interestingly, the potential earnings ramifications of a rate cut on the financial stocks are mixed and another reason Telstra should continue to shine.
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