Shares rise again, no rate cut in January, services sector struggling: Economy round-up

The new year cheer of Australian investors looks set to continue, with the Australian sharemarket enjoying solid gains in morning trade.

The new year cheer of Australian investors looks set to continue, with the Australian sharemarket enjoying solid gains in morning trade.

The benchmark S&P/ASX200 index rose gained 1.8%, or 65.5 points, to be at 3752.5 at noon AEDST.

Resources stocks have enjoyed another good day, with Rio Tinto rising 1.75% and BHP Billiton up 1%. Oil companies including Santos and Woodside have also enjoyed gains as the oil price jumped another 5% overnight.

The rise on the local markets followed a subdued night on Wall Street, where the Dow Jones Industrial Average fell 0.9% after strong gains in the last 10 days. Financial stocks slumped after leading analysts at Deutsche Bank cut earnings forecasts on 16 large commercial banks, including JPMorgan Chase & Co.

Surprise rate cut ruled out

The likelihood of a surprise cut to official rates in January has been all but ruled out by economists.

The Reserve Bank traditionally holds its first meeting for the new year in February, but some commentators had speculated that the current financial crisis could force the bank to hold an emergency meeting in January.

RBA Governor Glenn Stevens said last month: “No meeting has been scheduled for this time… (but) the option is open in any month to do something inter-meeting if there’s a big event to cause it.”

But NAB Capital senior economist Spiros Papadopoulos told AAP little had happened likely to change the RBA’s mindset.

“There has not been anything to cause any increased panic or concern that would cause them to a mid-meeting cut.”

Services sector still struggling

Companies in Australia’s services sector are still hanging out for more rate cuts if today’s Australian Industry Group/Commonwealth Bank performance of services index is any guide.

The index, based on a poll of 200 firms, posted a reading of 39.3 points. While this was 1.5 points higher than in November 2008, it is the ninth consecutive reading under 50, which indicates the sector is contracting.

AIG chief executive Heather Ridout said the services sector is facing tough business conditions and the outlook is poor.

“Of particular concern is the continued decline in new orders and supplier deliveries, both of which fell for a ninth consecutive month in December. This ongoing uncertainty is encouraging services firms to further rely on existing inventories to meet current demand.”