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The ASX200 dropped another 0.7% on Wednesday with the banks accounting for 85% of the decline. The market has dropped over 200 points/2.6% since MM adopted a neutral stance last week, but we’re in no hurry to “buy the dip” just yet.
A tough day at the office with more misses than hits on the earnings front and some big negative share price reactions to boot. While CBA traded ex-dividend ($2.25 FF) falling $3.66, the sector was under pressure courtesy of a weak quarterly update from NAB with the big banks accounting for 52 of 61point decline on the main board.
We are making several changes across portfolios
Tuesday’s interest rate decision and accompanying commentary was one occasion we weren’t overly happy to be correct on; MM has written a few times recently that the RBA should and will cut rates by 0.25%, but we expected a cautious tone and only one more cut in 2025.
The most anticipated RBA meeting in recent memory delivered as expected today, with RBA Governor Michelle Bullock cutting rates, but said future cuts are far from assured. In other words, the market has gotten ahead of itself pricing in multiple cuts this side of Christmas. Stocks were lower after the announcement and the AUD moved higher.
The RBA cut rates this afternoon by 0.25%, the first policy change since late 2023. Pressures have been building on the independent RBA for weeks, and no cut would have reverberated negatively across the economy and financial markets. Forecasting interest rates is fraught with danger, but a less restrictive Cash Rate of around 3.5% feels more on point in today’s environment, where many Australians are hurting financially.
The ASX200 slipped -0.2% on Monday, a reasonable performance considering the weakness in the banks dragged the market down ~0.9% at its worst. More on the banks later, but their influence was evident, with weakness across the sector weighing on the broader market.
While the ASX closed in the red, it was a big turnaround from early weakness with a large sell-off in the banks, headlined by Bendigo (BEN) & supported by Westpac (WBC) weighing on the market early, however, from 1pm onwards the buyers stepped up pushing the main board more than +60 points above the session lows as reporting season continues to deliver a mixed bag, with a positive bias.
It’s no secret that the RBA is expected to cut rates this week, with the futures market calling it an “87% probability.” However, the accompanying rhetoric is likely to drive local stocks in the coming weeks, especially with the market looking for two additional cuts into Christmas, taking the Cash Rate to 3.6%. Local rates have sat at a restrictive 4.35% since November 2023, and we think three cuts are likely to prove too dovish; Michele Bullock’s comments on Tuesday will be a classic case of the devil being in the detail.
Last week, the ASX200 climbed +0.5%, notching fresh highs on Thursday and Friday. However, on both occasions, the market surrendered most of the day’s gains by the close. It was a mixed affair on the sector front, with the Industrials +2.9 % and consumer staples +2.4% leading the line while the healthcare -3.8% and energy stocks -1.1% took the open spoon. However, the real action unfolded on the stock level as is typical during reporting season:
