Holiday Respite For Share Traders

Sydney Morning Herald

Monday January 28, 2008

Jesse Hogan with agencies

BROKERS reeling from a long, turbulent week of sharemarket trading will be given some respite today, courtesy of the Australia Day long weekend, but will be braced for more disappointment tomorrow.

The most influential US share index, the Dow Jones Industrial Average, slipped 1.4 per cent on Friday, triggering in futures trading what translates to a 75 point fall in Australia's sharemarket value.

"Essentially, if we were open on Monday, we'd be down," said the chief economist with BT Financial Group, Chris Caton.

"Now we've at least got a chance because the US may rise on Monday, and we'll know about that on Tuesday morning."

There is scant influential economic information to be released from official Australian sources this week, prompting the broker CommSec to explain to its clients that "you could hardly call the coming week's domestic economic calendar 'densely packed'."

Instead, most market watchers will be waiting for Thursday night, when the Federal Open Market Committee's makes its latest decision on US interest rates.

Last week's sharemarket turmoil was followed by an emergency 75 basis-point cut in US rates to 3.5 per cent, with the committee citing "a weakening of the economic outlook and increasing downside risks to growth" as the catalyst.

Since the start of the year the Dow Jones index has slumped 8 per cent, and the broader S&P 500 has fallen 9.4 per cent.

Dr Caton said a further interest rate cut was inevitable, because for the past decade whenever the committee had made unscheduled interest rate movements it had followed that up with "a cut at least as big at the next meeting".

"The reason not to expect a usual model - the 75 [basis point cut] and then another 75 - is because they cut so close to the meeting," he said.

"There is an argument that monetary policy should proceed in gradual steps. So even if you think you know that the right interest rate cut is at least a full 1 per cent from where it is now, there's some rationale in doing it in two steps rather than in one."

The likely outcome is a 25 basis point cut to 3.25 per cent, according to futures trading and the average economist forecast in a Bloomberg survey.

Another important announcement for this week will be the US unemployment figures, although the timing of the release - over the weekend in Australia - will mean market reaction will not be known until the following week.

This year Australia's two main indices, the ASX 200 and the All Ordinaries, have slumped 7.6 per cent and 8.3 per cent respectively.

Some brokers are concerned the market is now set for a bear phase after years of increasing returns, but CommSec's chief economist, Craig James, is among those who believe the rout could be shortlived. "We now expect the All Ordinaries index and ASX 200 to claw their way back to around 6000 points by mid-year and to 6700 points by the end of 2008."

The earnings season begins with Alumina reporting its 2007 full year results on Thursday, and Woolworths will publish its second quarter sales figures on Wednesday.