Weak start for Aussie market

Beware of the latest share-buying spree Source: Supplied

The Australian market has opened flat as gains for defensive stock offset losses for Westpac and Macquarie banks.

IG market strategist Evan Lucas said Westpac and Macquarie were dragging down the market as both went ex-dividend.

"It's a bit of a weak start, which was expected as commodity prices were a little bit mixed over the weekend and Westpac and Macquarie going ex-dividend was always going to hurt us,'' he said.

Westpac dived $1.051 to $31.80 while Macquarie tumbled 79 cents to $45.18.

The other banks opened mixed. ANZ was flat at $30.13, National Australia Bank jumped 30 cents to $32.77 and Commonwealth Bank gained 51 cents to $71.08.

Defensive stocks such as Wesfarmers and Woolworths opened in positive territory. Wesfarmers was up six cents to $42.39 and at 1038 Woolworths was up 26 cents to $34.96.

The mining giants opened lower. BHP Billiton fell 27 cents to $34.48, Rio Tinto declined 47 cents to $57.98 and Fortescue lost 5.5 cents to $3.855.

By 1052 AEST, Dulux Group shares had jumped four cents to $4.52 after it said first half profit dropped 31 per cent because of costs from its takeover of building products and garage door supplier Alesco.

Explosives and fertiliser maker Incitec Pivot shares had gained six cents to $2.89 after the company said its first half profit had fallen 23 per cent with its fertiliser operations hit by the high Australian dollar.

In economic news, the Australia Bureau of Statistics is due to release March housing finance figures, while the National Australia Bank's monthly business survey is due out on Monday.

On Wall Street on Friday, stocks overcame a choppy day of trading and closed at fresh all-time highs as Group of Seven finance chiefs met in Britain to discuss economic challenges.

The Dow Jones Industrial Average rose 35.87 (0.24 per cent) to 15,118.49, a new all-time closing high.

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Weak start for Aussie market

Beware of the latest share-buying spree Source: Supplied

The Australian share market has opened lower.

At 10:11 AEST the benchmark S&P/ASX200 index was down 8.7 points, or 0.17 per cent, at 5,197.4, while the broader All Ordinaries index was down 7.00 points, or 0.13 per cent, at 5,184.1.

On the ASX 24, the June share price index futures contract was down one point at 5,206, with 6,030 contracts traded.

In economic news on Monday, the Australia Bureau of Statistics is due to release March housing finance figures, while the National Australia Bank's monthly business survey is due out.

In equities news, Dulux Group and Incitev Pivot are both expected to post first half results, while Westfield Retail Trust has its annual general meeting.

In Australia, the market on Friday closed at levels last seen almost five years ago as a weakening local currency boosted the big miners.

The benchmark S&P/ASX200 index was up 7.7 points, or 0.15 per cent, at 5,206.1 points, while the broader All Ordinaries index was up 10.5 points, or 0.2 per cent, to 5,191.1 points.

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Big Four tipped to start rates war

AN unprecedented out-of-cycle interest rate cut may still be on the cards, even if the Reserve Bank keeps the official cash rate on hold, as expected, today.

News Limited's shadow Reserve Bank has voted to keep the cash rate on ice today, but three members think at least one major bank will slash its standard variable rate by five basis points anyway.

Research fellow at the Centre for Independent Studies, Stephen Kirchner, is tipping a five-basis point cut by one of the Big Four will spark a discounting war.

"I think there is scope for further out-of-cycle cuts in at least some lending rates, if not the standard variable rate," Dr Kirchner said.

However, any out-of-cycle cut would be taken into account when the Reserve Bank next came to consider cuts.

"This just lessens the prospects for cuts in the official rate," he said.

Fellow shadow board member and Airport Economist Tim Harcourt also expects an out-of-cycle cut. "If the RBA leaves rates unchanged, I think at least one of the Big Four banks will try to get first-mover advantage and cut mortgage rates by five basis points or so," he said.

Managing director of Market Economics, Stephen Koukoulas, has also argued lower funding costs will open the door to voluntary cuts.

Bank of America Merrill Lynch chief economist Saul Eslake said that at the very least, home borrowers could expect to pocket any further rate cut in full.

In addition, "the banks appear to have been more willing to 'discount' their mortgage rates in order to capturebusiness in recent months," Mr Eslake said.

A respected banking analyst with brokerage CSLA, Brian Johnson, said the chances of an out-of-cycle cut this month were "low" given higher payouts on term deposits and a likely rise in short-term wholesale funding costs if it became apparent the Reserve's rate cutting cycle was over. "The most favourable dynamic right now is that the 90-day bank bill, which most bank funding is swapped to, is below the Reserve Bank's 3 per cent cash rate. That's extremely favourable now but it could reverse in a heart beat".

However, politics could come into play. "I think it's highly unlikely in an election year that you'll see net interest margins expand." So if funding costs began to ease significantly, out of cycle rate cuts could be on the cards. "If things do really improve, we should expect banks to pass that on to consumers."

A spokeswoman for loan comparison website Rate City, Michelle Hutchison, said an out-of-cycle interest rate cut was "more likely than not" and would come after four small lenders cut their rates voluntarily last week. "We have never seen variable home loan rates fall out of cycle. We have seen them increase but we haven't seen them drop," she said.

The Shadow RBA is split on the future for the official cash rate.

Two members, HSBC Australia's chief economist Paul Bloxham and Eureka Report's Adam Carr, are tipping rate hikes within the year.

According to Mr Carr: "Things globallyaren't anywhere nears as bad as the Reserve Bank board had thought and so I think they'll be hard pressed tojustifyfurthercuts."

Mr Bloxham said there had been was more evidence of recovery in the non-mining parts of the economy. "This month brought further signs that already low interest rates are getting some traction: consumer sentiment bounced, the housing market improved and the Australian share market rose to a new four and a half year high."

However, the majority of the board five out of nine expect further rate cuts this year will be needed to ensure a smooth transition after the end of the mining investment boom.

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