Shares fall as chances of rate cut grow

Inflation falls outside RBA's preferred range

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 25, 2012 5:23 pm AEST

The S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) has ended down 0.2% to 4,123.9 as more European alarm bells ring, and following three days of falling overseas markets. Investors appear to be concerned over the size of a potential Spanish bailout, amidst heightened fears of Greece leaving the euro.

The Consumer Price Index (CPI) numbers were released today and show that inflation rose at its slowest rate in 14 years in the June quarter, which may allow the Reserve Bank of Australia (RBA) scope to cut rates in August, should they feel it necessary. The bank's preferred measure of inflation has dropped to 1.95%, which is below the preferred range of 2-3%. Given the RBA has cut rates by more than 1% since November, it also may want to wait a bit longer to see how those cuts impact on the economy.

The Australian dollar is currently buying 102.2 US cents.

Bloomberg has reported that Chinese steel exports have risen to 8.7% of domestic output last month – the highest proportion in two years as Chinese steel mills ramped up exports to avoid a slower domestic market. The Chinese government is overseeing a US$23 billion investment in new steel mills to stimulate motor vehicle production and housing to reignite growth.

Company news

OZ Minerals Limited (ASX: OZL) shares have fallen 1.3%, after the miner announced that it had produced less gold and copper in the last quarter to June, compared to the March quarter. The company also announced that production costs had risen.

Macquarie Group Limited (ASX: MQG) held its annual general meeting today, and reiterated that it expects a better 2012/13 financial year, provided markets do not deteriorate further. Investors weren't having any of it, and shares in the investment bank fell 1.8% to $23.87.

Despite their rejected merger, ASX Limited (ASX: ASX) has announced that it and the Singapore Stock Exchange are working together to establish a presence in each other's co-location data centre, to enhance customer connectivity to their respective markets.

Energy and pipelines business APA Group (ASX: APA) has today upped its bid for Hastings Diversified Utilities Fund (ASX: HDF) to $2.50 per security, plus the 2.5 cent dividend to be paid by HDF. Investors appear to expect another higher bid, with HDF securities closing at $2.54. Pipeline Partners Australia (PPA) had offered $2.325 for each unit plus the 2.5 cent dividend. With that offer now trumped by APA's latest bid, the ball is now in PPA's court.

DuluxGroup Limited (ASX: DLX) has slammed Alesco Corporation's (ASX: ALS) 2012 financial results, saying they demonstrate the company's continued underperformance and uncertain outlook. Alesco reported a $13.9m loss after tax. Despite the poor results, Alesco's shares remained unchanged, as investors focused instead on the takeover battle.

Winners and Losers

Of the majors, Newcrest Mining Limited (ASX: NCM) and Toll Holdings Limited (ASX: TOL) were the best performers, rising 4.6% and 2.9% respectively, while the worst performers were BlueScope Steel Limited (ASX: BSL) down 3.9% to 25 cents, and Alumina Limited (ASX: AWC), falling 3% to 64 cents.

Foolish takeaway

Today's inflation numbers give the RBA room to move, should global markets fall further and if the central bank feels the need to cut the official interest rate, but don't bet on it!

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. 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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