Shares extended gains this morning after unexpectedly soft economic data strengthened the argument for another rate cut.
At 1pm EST the ASX 200 was 37 points or 0.7% ahead at 5465 and on track for a second day of gains. The benchmark index added to early gains after the 11.30am EST release of data showing the economy contracted 0.5% last quarter, the worst reading since the financial crisis. The negative result dragged annual GDP growth down 1.8% from a second-quarter reading of 3.1%. The dollar slumped almost half a cent in response to 74.25 US cents.
"Although the Australian economy contracted by 0.5% in the third quarter, this is very unlikely to be the start of a recession as GDP will most probably rebound in the fourth quarter," commented Capital Economics in Fairfax. "Nonetheless, this is only the fourth fall in GDP in 25 years, which highlights that the economic backdrop is not consistent with a big rise in underlying inflation. This supports our view that interest rates may fall from 1.5% to 1.0% next year, which could drag the Australian dollar below US$0.70."
The rate-sensitive financials sector led the rally with a rise of 1.1%. Also strong: IT +1%, metals & mining +0.8% and telecoms +0.9%. Energy stocks dipped 0.7% and gold 0.25%.
Wall Street rose overnight in expectation that the European Central Bank will act tomorrow night to cushion the economic bloc from any fallout from Sunday's rejection of constitutional reform in Italy.
“This stabilisation story in Europe and further stimulus from the ECB will be bullish for equities,” James Woods, analyst at Rivkin Securities, told Bloomberg. “The minimum we’re expecting is for the ECB to announce a six-month extension" to its bond-buying stimulus program.
China's Shanghai Composite was steady at -0.03%, while Hong Kong's Hang Seng gained 0.41% and Japan's Nikkei 0.37%. Dow futures dipped four points or 0.02%.
Crude oil futures eased another 26 cents or 0.51% this morning to US$50.67 a barrel. Gold futures were 30 cents or 0.03% firmer at US$1,170.40 an ounce.
Trading: still operating at half-throttle, due to heavy fogbanks in brainpan. Took a small speculator in PME for small results so far. That's the kind of slow-burner I can handle right now. Hope to return to the fast lane tomorrow.
