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(4.30pm AEDT)
The Australian sharemarket was travelling well for most of the session, until the Reserve Bank (RBA) decided to keep interest rates on hold at 4.25 pct. The All Ordinaries index (XAO) fell 0.5 pct or 19.7 pts to 4344.9. Most sectors lost ground following the RBA decision however the energy sector, the telcos and healthcare companies managed to end the day higher.
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The reporting season has kicked off this week and there were a few companies releasing their results throughout the day. Cochlear (COH), the manufacturer of inner ear implants announced its half-year profit this morning (the six months between July to December 2011).
The company posted a profit of $80.1 million prior to significant one off costs. When you take into account the $100 million (after tax) costs of a product recall back in September last year, the company has posted a $20.3 million loss over the half.
COH's revenue was $387.4 million and there was a 9 pct fall in product sales to 10724 over that period. The company also announced an interim dividend of $1.20 a share which is scheduled to be paid to investors on March 13th.
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Profit was a little better than expectations as was revenue. The declared dividend was 14 pct higher than in the corresponding period in 2012. One thing which was clear from the result was that the voluntary recall of one of its main product lines, the CI500 implant range has hurt the company's bottom line. COH shares were down 6.2 pct prior to today in the 2010 calendar year while COH shares rose 7.59 pct or $4.41 to $62.52 today.
The mining sector was worst hit today, with RIO Tinto (RIO) down 1.78 pct or $1.29 to $71.01 while BHP Billiton (BHP) lost 0.81 pct or 31 cents to $37.90.
Three of the four major banks lost ground today, with National Bank (NAB) by far the worst performer following a disappointing trading update. Macquarie Group (MQG) fell by 0.77 pct or 20 cents to $25.90 today after announcing a significant profit downgrade of as much as 25 pct. This was partly blamed on difficult global market conditions.
All eyes were firmly fixed on the Reserve Bank of Australia (RBA) and its rates decision out this afternoon. It was widely expected that interest rates would be cut by 25 bps (basis points) or 0.25 pct today to 4 pct. The market was factoring in a 76 pct chance of a rate cut today. The RBA surprised all those involved with the market by keeping interest rates unchanged.
Immediately following the decision the Australian dollar (AUD) rose strongly from US107 cents to US108 cents. The RBA meets on the first Tuesday of each calendar month (except in January) to make a decision on interest rates. The decision is announced at 2.30pm (AEDT) and can have a significant impact on both markets and currencies, particularly if the actual result is contrary to market expectations. The bank also always issues an accompanying statement with the rates decision which is freely available on the central bank's website (www.rba.gov.au).
In the first paragraph of the statement, Chairman Glenn Stevens acknowledged that the global economy is struggling however said that he sees sign of improvement in the European region nonetheless.
With rates remaining at 4.25 pct, Australia has some of the highest interest rates of any advanced economy. The official interest rates in Europe are at 1 pct while the Bank of England has rates at 0.5 pct. This gives the RBA more room to move on rates if necessary.
Commsec Economist, Craig James said that "The Reserve Bank clearly maintains an easing bias - a bias to cut rates. The key phrase of the statement was: "the Board judged that the setting of monetary policy was appropriate for the moment. Should demand conditions weaken materially; the inflation outlook would provide scope for easier monetary policy." Perhaps if the European situation deteriorates markedly, the next decision won't be whether to cut rate by 25 basis points, but rather 50 or 75 basis points."
Mr James continued by saying that "Despite the inaction on rates, there are still choices for those paying off home loans and those looking to enter the housing market. The 3-year fixed home loan rate stands at 6.35 per cent, around 1 percentage point below the variable rate. If you expect banks to cut the variable rate by more than a percentage point over the next few years then you would stick with the variable rate. But for those struggling with repayments or those looking to unleash some spending power, there are clearly options available."
