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** Interest Rate Cut
** The RBA announced a further 0.25% rate cut today. Low inflation and slowing housing growth provided the RBA the flexibility to lower interest rates to support growth. While the market was anticipating the rate cut and therefore the reaction is muted, we note the following implications:
1. The cut provides broad support for equities given the gap between dividend yields and cash rates remains wide. 2. A cut places further pressure on the currency given interest rate differentials are narrowing. This is positive for stocks with offshore earnings and for exporters but might limit enthusiasm from offshore investors for the Australian market. Positive for Treasury Wine Estates (ASX:TWE), SKYCITY Entertainment Group (ASX:SKC), SEEK (ASX:SEK), Macquarie Group (ASX:MQG). 3. Commonwealth Bank (ASX:CBA) has announced they will only pass on half the rate cut to mortgage holders. While this initially looks positive for the banks we note the banks funding costs will be higher as they will need to retain attractive TD rates to grow deposits. Lower interest rates will reduce risk of bad debts, so overall it is mixed from a banks perspective. 4. Domestic cyclical stocks and small business should benefit. There will be more money available for consumers (Tatts Group (ASX:TTS), Woolworths (ASX:WOW), other retailers) and it might extend the property cycle (or at least assist with settlements).
Low inflation suggests a further rate cut is likely.
Mando Valley Pty Ltd ATF Anderson Family Trust T/A Solidity Private Wealth, (ABN 13 791 903 550), is a Corporate Authorised Representative of The Advice Exchange Pty Ltd (ABN 55 107 629 194) who holds an Australian Financial Services Licence (No.278937).
The information contained in this document is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional on whether the information is appropriate for your particular needs, financial situation and investment objectives.
We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser. Solidity Private Wealth and The Advice Exchange Pty Ltd (The Advice Exchange) their officers, employees and agents make no representations or warranties and, to the extent permitted by law accepts, no responsibility for any loss or damage whatsoever arising in any way for any representation, act or omission, whether express or implied.
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