The Australian stock market continued its downward trend on Tuesday afternoon, with energy stocks and banks leading the losses, following the Reserve Bank’s interest rate cut. The RBA lowered rates for the first time in over four years but cautioned that further cuts are unlikely in the near future. The S&P/ASX 200 dropped 56.10 points, or 0.7%, finishing at 8481 points. All sectors saw declines, except for healthcare. The Australian dollar remained mostly stable at 63.55 US cents. These losses follow a minor 0.2% dip on Monday.
Key Gainers:
BHP, Australia’s largest mining company, managed to recover from early losses, closing 0.4% higher despite a 20% drop in profits due to weaker demand for iron ore from China. However, the company saw increased profits from copper and potash, which supported its performance.
CSL, a leading biotech company, helped lift the healthcare sector by 2.4%.
Hub24, an investment platform, saw its shares climb 4.6% after reporting a 40% surge in its first-half profit, reaching $42.6 million, along with an increase in dividends by 30%.
Judo Capital, a business-focused bank, surged 8.5% following a 70% jump in its net profit for the December half, aided by reduced expenses from impaired loans.
Key Decliners:
The big four banks fell further after announcing that they would pass the interest rate cut onto mortgage holders, reducing their variable rates by 25 basis points. CBA dropped 1.4%, NAB lost 2.5%, Westpac declined by 3%, and ANZ fell by 1.8%.
Shopping center owners Scentre and Vicinity both dropped 1.3%.
Consumer stocks such as Wesfarmers (owner of Bunnings and Officeworks) fell 1.4%, and electronics retailer JB Hi-Fi decreased by 3.5%.
The energy sector led the market losses, with oil and gas giant Woodside dropping 1.5%. This came after a disappointing update suggesting a decline in dividends, along with higher-than-expected costs for restoring oil fields. Additionally, coal miners like Yancoal, Whitehaven Coal, and New Hope Group faced losses of 1.8%, 5%, and 4.5%, respectively.
The RBA’s Decision: The Reserve Bank cut the cash rate by 0.25 percentage points to 4.1%, which was anticipated by markets and major banks after a year of rates holding steady at 4.35%. However, the RBA emphasized caution in its outlook, warning against too much easing too quickly. The central bank expressed concern that aggressive rate cuts could stall disinflation and leave inflation above its target range.
RBA Governor Michele Bullock reiterated that this rate cut does not suggest additional rate cuts are imminent, as the bank remains cautious due to the uncertain outlook. AMP’s chief economist, Shane Oliver, noted that the RBA is unlikely to rush into another rate cut, though it may still act in the coming months.
Overseas Market Update: In Europe, markets saw a boost on Monday, driven by defence stocks amid rising expectations of increased military spending in the region. The pan-European STOXX 600 index closed 0.5% higher at 555.42 points, marking its highest-ever closing level. The aerospace and defence sector led the gains with a 4.6% rise, the largest single-day increase since Russia’s invasion of Ukraine in 2022.
Several European defence companies saw significant gains, including Italy’s Leonardo (up 8.1%), Sweden’s Saab (up 16.2%), and Britain’s BAE Systems (up 8.9%). Germany’s ThyssenKrupp soared by 19.8% after announcing plans to spin off its warship division.
European leaders recently met in Paris for an emergency summit on Ukraine, while US officials suggested Europe would have no role in upcoming peace talks with Russia. Arms manufacturer Rheinmetall saw its shares jump 14%, helping boost Germany’s benchmark index to an all-time high.