No rate rise from the Reserve Bank yesterday, upsetting all those pundits who were forecasting a second reduction to go with the surprise chop in February.
The decision took many in the markets by surprise, so much so that the ASX 200 tumbled 60 points in a minute or so after the RBA statement was issued at 2.30pm.
It was a real temper tantrum by investors. So down went the market – taking the trading range for the day to near 100 points, after it had risen to past 5,995.
It bounced back to be down 33 points, by around 3pm and ended down 25 points, or 0.4%, at 5934 by the close.
The Aussie dollar, which had fallen ahead of the RBA meeting and announcement to around 77.52 USc, jumped by around a cent immediately after the no rate cut decision was made public. It was trading around 78.35USc late yesterday.
The bottom line was that there was no rate cut and the forecasts for the market to make a much-tipped charge through the 6,000 point level on the ASX 200 is still a mirage.
Bank shares fell, as did other so-called yield stocks (which look attractive when interest rates are falling).
The violent fall in the ASX and the prices of some of the big company shares tells us investors got well ahead of reality in forecasting another quick rate cut for a second successive month yesterday.
Data issued since the last meeting tells us that there is a big crunch coming over the next 18 months with a sharp fall in investment.
And while the economy is running at trend, other data (such as yesterday’s very strong building approvals), tells us nothing has really changed.
The market bulls claimed the RBA had merely put off a rate cut for another month or so, and a reading of the post meeting statement from Governor Glenn Stevens suggests that, but it could take a bit longer.
"In Australia the available information suggests that growth is continuing at a below-trend pace, with domestic demand growth overall quite weak. As a result, the unemployment rate has gradually moved higher over the past year,” Mr Stevens said in his post meeting statement yesterday.
"The economy is likely to be operating with a degree of spare capacity for some time yet. With growth in labour costs subdued, it appears likely that inflation will remain consistent with the target over the next one to two years, even with a lower exchange rate.
"Credit is recording moderate growth overall, with stronger growth in lending to investors in housing assets. Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities over recent months.
"The Bank is working with other regulators to assess and contain risks that may arise from the housing market. In other asset markets, prices for equities and commercial property have risen, in part as a result of declining long-term interest rates.
"The Australian dollar has declined noticeably against a rising US dollar, though less so against a basket of currencies. It remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy.
"At today’s meeting the Board judged that, having eased monetary policy at the previous meeting, it was appropriate to hold interest rates steady for the time being. Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target.
“The Board will further assess the case for such action at forthcoming meetings,” Mr Stevens concluded.
The bottom line is that there’s another rate cut out there, sometime soon. But watch data about investment and spending by companies. The December quarter’s first estimate for private investment in 2015-16 remain the big fear and the statistics the RBA is focused on. That will be the driver of further rate cuts.
