The Australian sharemarket plunged into the red on Tuesday afternoon as the surprise decision by the Reserve Bank of Australia to keep interest rates on hold led to a sell-off in higher-yielding stocks such as the big banks and Telstra, dashing hopes of the first finish above 6000 points in seven years.
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Most economists as well as investors had been expecting the bank to cut rates by 25 basis points to 2 per cent. The decision to keep rates steady sent the market plummeting 1 per cent within minutes.
At the close, the All Ordinaries was down 0.4 per cent to 5902.8, while the S&P/ASX 200 dropped 0.4 per cent to 5933.9.
The market opened in positive territory on the back of good gains on Wall Street, with the tech stock Nasdaq Index overnight closing above 5000 for the first time in 15 years. Within the first hour, the ASX 200 came within a few points of breaking 6000; its first time at that level since the global financial crisis.
However, the Reserve Bank's decision ended speculation of a 6000-plus finish as shares performed a quick about-face.
"The RBA's decision to leave rates unchanged after cutting at their first meeting of the year may reflect concern about the heat that is returning to the housing market," Aberdeen Asset Management senior investment manager Jasmin Argyrou said.
"Another rate cut will eventually be needed to cushion the economy from a slowdown in mining investment and sluggish non-resources sectors. Low inflation here and overseas will make the decision easier when the time comes."
Ord Minnett senior investment adviser Tony Paterno said a 6000 finish was unlikely in the short term.
"If it weren't for the fact a bunch of stocks traded ex-dividend over the past week, the ASX 200 would have already pushed through 6000 points. Now, without a March interest rate cut, it will be very difficult for the ASX 200 to push through 6000 points," he said.
Contango Asset Management fund manager George Boubouras agreed that investors would probably have to wait for another rate cut before the ASX 200 had the technical support to push back through 6000 points.
"Corporate Australia is really struggling and dependent on more easy monetary policy to stimulate earnings growth," Mr Boubouras said.
"The sharemarket fell following Tuesday's rates decision but it is worth remembering that only a few days into March, and despite a lacklustre February company reporting season, the ASX 200 has already exceeded most forecasters' targets for 2015 as investors have bid up prices ahead of expectations that stronger corporate earnings will finally begin to flow through in 2016."
The market is trading on a valuation of about 17 times earnings, above its long-term average, as investors price in a better outlook for 2016 fuelled by interest rates staying lower for longer.
But even more stimulus would be needed for company profits to catch up with the expectations reflected in their share prices, Mr Boubouras said.
"There are probably three important preconditions required for the market to keep rising from here: for the cash rate [to] go lower, for bond rates to stay in check, and that the dollar doesn't rally. Some clearer direction on fiscal policy development out of Canberra would help, too".
The rate decision followed fairly strong economic data, including the fourth-quarter current account deficit shrinking to $9.6 billion from $12.1 billion in the previous quarter; building approvals soaring 7.9 per cent in January; approvals for private sector houses rising 0.4 per cent; and the ANZ weekly consumer confidence index rising 1.7 points to 112.5.
The big banks and Telstra all dropped after the rates decision. ANZ Banking Group lost 0.1 per cent to $35.66, Commonwealth Bank of Australia slipped 0.6 per cent to $91.92, National Australia Bank shaved 0.1 per cent to $38.29 and Westpac dipped 0.1 per cent to $38.26. Telstra lost 0.6 per cent to $6.38.
Big miners BHP Billiton and Rio Tinto, which had been trading lower earlier in the day, both fell heavily, with BHP diving 1.7 per cent to $33.54 and Rio sinking 1.2 per cent to $64.80.
Woolworths gained 1.8 per cent to $29.82 after selling its 8.8 per cent stake in New Zealand retailer The Warehouse Group for $NZ86.9 million ($84.1 million), less than half the price it paid eight years ago, after abandoning plans to enter the New Zealand discount department store sector.
Woolworths said it had sold its 30.5 million shares in The Warehouse Group for $NZ2.85 a share – a slight premium to the market price of $NZ2.72 – to privately held trans-Tasman retailer James Pascoe Group.
Competitor Wesfarmers also gained, putting on 0.8 per cent to $43.66.
Suncorp shares slumped 1.9 per cent to $13.75 after the insurer said cyclone Marcia was expected to cost the company between $120 million and $150 million in insurance claims.
The cyclone, combined with last November's super storm in Brisbane, is expected to push Suncorp's annual natural hazard expenses to between $690 million and $720 million, above its yearly allowance of $595 million.
Suncorp said the affect of the two natural disasters within six months would make it unlikely for the company to reach its return on equity target of 10 per cent for the 2014-15 financial year.