The share market has erased four days of losses en route to a six-and-a-half-year high as investors bought yield stocks after downbeat testimony from the Reserve Bank hinted at further rate cuts this year.
At lunchtime the ASX 200 was 123 points or 2.1% ahead at 5866, the index's highest point since May 2008. A broad rally boosted all sectors after RBA Governor Glenn Stevens told a House of Representatives committee that the economy had yet to pick up the slack created by the downturn in mining.
"Our expectation had been that a further pick-up would occur in 2015," he said. "When we reviewed our forecasts in late January, we didn't feel that growth in the recent past had been materially different from what we had estimated a few months ago. But when we tried to look ahead, we concluded that there were fewer signs of a further pick-up in non-mining activity than we had hoped to see by now. As a result, the revised forecasts we took to the February Board meeting embodied a longer period of below-trend growth, and a higher peak in the rate of unemployment than earlier forecasts." Read more here.
Mr Stevens' testimony raised expectations for further rate cuts to support growth. "There is... interest in the banks and other high yield stocks on the back of potential of another interest rate cut in March," Macquarie Private Wealth divisional director Martin Lakos told Fairfax. "This reporting season has beaten expectations slightly."
China's Shanghai Composite rallied 0.37%, Hong Kong's Hang Seng added 0.59% and Japan's Nikkei fell 0.3%. Dow futures were recently down 16 points or less than 0.1%.
Crude oil futures eased 13 cents this morning to US$51.08 a barrel. Spot gold was $4 higher at US$1,224.70 an ounce. The dollar was buying 77.49 US cents.
Glenn Stevens has certainly been the trader's friend over the last four weeks. The RBA can take credit for most of a month-long rally that is now nearing 600 index points. The Small Ords caught some of it, but the specs have been left behind because you can get good returns with much lower risk at the big end right now. Fingers crossed that some of those funds eventually flow back the other way. Trading: a better session to end a week to forget. I took AWE late yesterday because oil was rising while the share price headed the other way. Sure enough, there was a nice overnight rise and a fat buy queue to sell into at the open. Got a pip out of PBT and just took a dab at MSB.
