Australia Stocks recover after dovish RBA minutes

The Australian share market advanced on Tuesday, 19 November 2019, after RBA's minutes for the November meeting sent a more dovish tone than expected. However, market gains capped as investors remain cautious over prospects for an agreement in trade talks between the United States and China. Around late afternoon, the benchmark S&P/ASX200 index inclined 47.38 points, or 0.7%, to 6,814.20, while the broader All Ordinaries added 42.38 points, or 0.62%, to 6,914.10.

Stock markets around the world are swinging on every hint of progress or tension with an agreement in trade talks between the United States and China. News that the United States granted another 90 days for companies to cease doing business with China's telecoms giant Huawei competed with reports suggesting Beijing was 'pessimistic' regarding the trade deal anytime soon as Trump is supposedly not in favour of any tariff rollbacks.

 

That came following a report over the weekend by Chinese state media that constructive trade talks had occurred at a high level between Beijing and Washington. The two economic powerhouses have been working toward reaching a phase one deal, expected to be signed soon, following a tariff war that has lasted for more than a year and dented investor sentiment.

Meanwhile, China's central bank on Monday lowered the interest rate on its regular reverse repurchase open market operations for the first time since October 2015 in an effort to boost market confidence and buoy slowing growth.

A2 Milk (A2M) shares inclined by 16%, after the dairy group at its AGM said it expects sales to lift in all its market and anticipates revenue to surge by as much as 30% between July and December to between A$780-A$800n. A2M also has flagged improved margins, up to 84% growth in China and a doubling in sales in the U.S.

ECONOMIC NEWS: the Reserve Bank of Australia's minutes from its monetary policy meeting on November 5 released today, revealing the Board was mindful that rates were already very low and that each further cut brings closer the point at which other policy options come into play. This message sounded like the central bank might stand on the sideline for some time. However, the minutes revealed that the members remained concerned about sluggish economic developments despite previous rate cuts. Given the disappointing employment report for November, it appears that the chance of further easing has increased. Although the RBA left its key interest rate unchanged at a record low of 0.75%, as widely expected, after cutting it by a quarter point in October, they admitted that a case could be made to ease monetary policy. The members acknowledged that the gradual progress towards RBA's goals has been only gradual. They refrained from easing further this month because of the concerns about the negative effects of lower interest rates on savers and confidence. They, however, retained the view that lower interest rates could support economic growth via traditional channels, such as a lower exchange rate, higher asset prices and higher cash flows for borrowers. Yet, the RBA board members also discussed the impacts of further easing on market confidence.

CURRENCY NEWS: The Australian dollar, sensitive to shifts in broader risk appetite, eased against greenback, following the release of the Reserve Bank's latest Board meeting minutes. The RBA kept rates on hold two weeks ago following three rate cuts in 2019. The RBA today said 'that a case could be made to ease monetary policy this month. The Australian dollar changed hands at $0.6790 following highs above $0.681 seen yesterday.

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