Australian Banks Lift Broader Indexes; RBA Defense Sound Hollow

Marcus Jacob
22 Mar, 2012
New York City

Australian stocks traded higher and banks rallied on the hopes of lower interest rate in the next few months after a private survey indicated another monthly slowdown in manufacturing in China.

[R]8:00 PM Sydney – Australian stocks traded higher and banks rallied on the hopes of lower interest rate in the next few months after a private survey indicated another monthly slowdown in manufacturing in China.[/R]

Australian indexes traded higher after banks rallied on the hopes that interest rates are likely to trend lower in the next six months.

Market speculation of lower rate trend increased after China said manufacturing declined for the fifth month in a row in March according to a private survey. Growth in China’s manufacturing is likely to fall further if exports decline and domestic demand weaken as the nation engineers a soft landing.

The ASX 200 index increased 19.40 to 4,273.70. All Ordinaries index gained 17.89 to 4,364.88.

The Australia dollar declined to $1.04 after the release of manufacturing data from China.

Guy Debelle, Reserve Bank of Australia assistant governor defended the latest increase in interest banks by local banks.

Debelle said that average cost of funding for local banks have increased between 145 and 155 basis points since 2007 and banks have raised to defend their profit margins.

He added that according to the data compiled by the central bank the average cost of funding was between120 and 130 basis points higher relative to the cash rate set by the RBA.

Four largest banks lifted rates after ANZ lifted mortgage rates. However, banks are reporting record net profits and four largest banks reported profits of more than $25 billion in 2011.

Australian banks rely for about one third of its funding needs from overseas markets and rates have eased in the recent months which have not been passed on to mortgage clients and there is a general perception that banks are eager to raise rates and not quick to lower rates when funding costs decline.

Stock Movers

BHP Billiton Ltd increased 10 cents to $34.80 and Rio Tinto Ltd decreased 67 cents to $64.67.

Fortescue Metals Group rose 2 cents to $6.08 and said that it may list its magnetite iron ore business in Hong Kong or Shanghai in the next two to three years to finance the expansion.

Lynas Corporation Limited closed unchanged at $1.14 and Iluka Resources closed up 15 cents to $17.45.

Newcrest Mining increased 58 cents to $29.35 and Kingsgate rose 6 cents to $6.43.

Oil Search Limited fell 4 cent to $6.88, Santos Limited rose 3 cents to $14.41 and Woodside Petroleum fell 1 cent to $34.89.

Commonwealth Bank of Australia increased 39 cents to $49.02, Westpac closed up 24 cents to $21.29 and NAB decreased 6 cents to $25.24. ANZ decreased 10 cents to $23.55.

Macquarie Group gained 84 cents to $29.11.

David Jones Limited closed down 3 cents at $2.40 after the retailer said first half net profit declined 19.6% from a year ago to $85 million and revenues declined 6.7% to $1.011 billion.

Harvey Norman Holdings closed up 2 cents at $1.93 and Woolworths increased 5 cent to $24.98. Myer rose 2 cents to $2.26.

Kathmandu closed unchanged at $1.25 and a day ago the retailer reported first half profit decline of 43% and Oroton fell 5 cents to $8.65.

Real estate developers closed mixed and Westfield Group closed unchanged to $8.69 and Stockland increased 5 cents to $3.19.

Qantas Airways Ltd closed down 1 cent to $1.76, Virgin Australia fell 0.05 at 46 cents and Flight Centre increased 4 cents to $21.00.