The Australian share market opened slightly lower defying positive leads from Wall Street and is now tracking 0.4 per cent lower at noon, with economic data on the services industry and optimistic projections from Reserve Bank of Australia Governor Philip Lowe doing nothing to turn the tide.
The S&P/ASX 200 index is 31 points down at 7,019. On the futures market the SPI is 30 points lower.
Local economic news
Reserve Bank of Australia Governor Philip Lowe made a speech this morning to the House of Representatives Standing Committee on Economics. The RBA forecasts that economic growth in Australia will pick up from an average rate of 2 per cent over the past couple of years to 2¾ per cent this year, and 3 per cent over 2021. This is supported by monetary policy, a new expansion phase in the resources sector, stronger consumer spending and a recovery in dwelling investment which is expected later in the year.
Mr Lowe says the outbreak of the coronavirus represents a new source of uncertainty and its too early to say what the impact will be. He noted that household spending has been very soft in response to falling housing prices. He expects this to continue for a while yet.
The RBA Governor also commented on the fires, estimating that over the December and March quarters, the fires will have reduced Australian GDP growth by around 0.2 percentage points. The drought is also continuing to act as a drag on the economy and is expected to reduce GDP growth by a quarter of a percentage point this year.
The RBA expects the unemployment rate to hold steady for a while at just over 5 per cent. Inflation has been in line with the RBA’s expectations, with CPI inflation running at 1.8 per cent.
Mr Lowe also flagged that negative interest rates in Australia are “extraordinary unlikely” and that quantitative easing – that is, the RBA purchasing assets through balance sheet expansion – is not expected to occur and would only be employed if the cash rate fell to 0.25 per cent. At that point, the focus would only be on purchasing government (rather than private sector) securities to put downward pressure on longer-term interest rates.
Ai Group has released its Performance of Services Index for January 2020. The index fell by 1.3 points to 47.4 in seasonally adjusted terms. This missed the market’s expectation and marks the second month of decline for Australia’s services industries.
Citi has raised its 12 month target price on food retailing giant Coles Group (ASX:COL) from $16.60 to $16.90. The broker retains its neutral rating, noting that first half headline earnings guidance is driven by one-off items. Growth remains subdued but is still better than the broker expected. Shares in Coles Group (ASX:COL) are trading 1.6 per cent higher at $16.89 at noon.
Medicinal cannabis company Cann Group (ASX:CAN) has successfully completed its $8 million raising. The offer of convertible notes was made to sophisticated and professional investors. The proceeds of the offer are expected to be settled on 10 February 2020 and will be used for working capital requirements. Cann Group CEO Peter Crock says “It is very pleasing to have strong investor support as we progress discussions with a Tier 1 Australian bank on a loan facility and finalise details of the funding package for the staged commissioning of our Mildura production facility”. Shares in Cann Group (ASX:CAN) are trading 5.3 per cent lower at $1.24 at noon.
Best and worst performers
The best-performing sector is Consumer Staples, adding 0.6 per cent, while the worst performing sector is Energy, shedding 1.3 per cent.
The best performing stock in the S&P/ASX 200 is Gold Road Resources (ASX:GOR), rising 6.2 per cent to $1.54, followed by shares in Pinnacle Investment Management (ASX:PNI) and Collins Foods (ASX:CKF).
The worst performing stock in the S&P/ASX 200 is Orocobre (ASX:ORE),dropping 6.8 per cent to $3.45, followed by shares in Mayne Pharma Group (ASX:MYX) and Beach Energy (ASX:BPT).
Commodities and the dollar
Gold is trading higher at US$1,567 an ounce.
Iron ore price rose 2.3 per cent to US$83.17.
Iron ore futures are pointing to a rise of 0.2 per cent.
One Australian dollar is buying 67.22 US cents.