Rate Cut Not Helpful to Australian ETF

The first rate cut in seven years by Australia's central bank Tuesday has not helped the iShares MSCI Australian ETF (EWA) which is down 2% in afternoon trading.

After cutting the official rate from 7.25% to 7%, the Reserve Bank of Australia said that tight financial conditions together with higher fuel costs and lower asset values had "exerted the needed restraint on demand".

Peter Smith of the Financial Times notes that a series of recent indicators has suggested the Australian economy is in much better health than expected. Until late last month, many economists had predicted a further four rate cuts within the next seven months.

Resource-oriented exports were up sharply leading to an unexpected big improvement in Australia's current account balance, with the quarterly deficit dropping from A$20bn at the end of March to A$12.8bn.

Weighing the market down today is perhaps the news that the two largest holdings in the ETF basket, Rio Tinto and BHP Billiton, were affected by the suspension of the review of their proposed $130 billion merger by European regulators. On the positive side, Bloomberg reports that Australia's four biggest banks, which account for 20% of the market's value, would pass on the lower rates to consumers staggering under housing prices at a 22 year high.

Comments

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This E.T.F. is made up of alot of resource related companies which right now are the worst stocks to own (sector)....EVERYTHING energy related is getting hammered plus my uranium company PALADIN ENERGY (PALAF)

2008 Sep 04 09:37 PM