Foolish Preview: Dow falls, ASX likely to follow

Central banks cut rates, but investors aren't happy

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published July 6, 2012 9:02 am AEST

US markets were mixed overnight, with The Dow Jones Industrial Average down 0.4%, the S&P 500 Index closing 0.5% lower and the Nasdaq Composite Index ending flat, despite Apple rising 1.8% to US$609.94 and Google adding 1.4% to US$595.92.

It was all about central bank action overnight, with the People's Bank of China cutting its lending rate by 31 basis points to 6%, and the deposit rate by a quarter of a percent to 3%. The Bank of England followed, keeping the official cash rate at 0.5%, but decided to pump £50 billion into the economy.

The European Central Bank cut its benchmark rate by a quarter of a percent to a record low of 0.75%.

Despite central bank actions, European markets were disappointed. Only the UK's FTSE 100 managed to post a positive rise of 0.1%, while the German DAX fell 0.5%, and Paris' CAC 40 slumped by 1.2%. Spanish and Italian exchanges meanwhile suffered big losses, both falling by more than 2%.

The Australian dollar was trading slightly higher against the greenback, at 102.8 US cents, after earlier hitting a two-month high of 103.3 US cents.

Early falls likely

The ASX SPI futures was down 9 points, suggesting the S&P / ASX 200 (Index: ^AXJO) (ASX: XJO) could show an early fall.

The decision by China to stimulate its economy by dropping interest rates could have a positive impact on our resources companies.

Telstra Corporation (ASX: TLS) yesterday announced that it was increasing the costs of its mobile phone services, with some services rising by as much as 10%. The move may have come as more people switch to using internet-based communication services such as Facebook Messenger, Skype and Apple's iCloud. All three services compete with traditional SMS, which may place additional pressure on Telcos' profits.

Leighton Holdings Limited (ASX: LEI) could be in the news, as the company sacked one of its senior managers, amid a corruption investigation into its Iraq operations. And according to a report in today's Sydney Morning Herald, Leighton's $705m Sapphire to Woolgoolga Pacific Highway upgrade is in financial trouble. Industry sources say that Leighton set the job poorly and got hit by wet weather.

Speaking of weather, apparently the current cold snap in some parts of Australia is good news for our retailers. Consumers are flocking to buy wet weather gear and warm clothing according the Australian Financial Review. Retailers like Kathmandu Holdings Limited (ASX: KMD) will be hoping the cold snap continues. And cold weekends appear to be good news for TV sales, which should make executives at JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Ltd (ASX: HVN) pray for snow.

Foolish takeaway

Snow in Brisbane, Perth and Darwin? Perhaps not, but bring on the cold weather – if it helps our retailers, I'm all for it. Fool On!

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Motley Fool writer/analyst Mike King owns shares in JB Hi-Fi and Leightons. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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