The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has surged toward a new seven-year high today as the market waits for the Reserve Bank of Australia's latest decision on interest rates, set to be announced at 2:30pm this afternoon (Sydney time).
Following on from a strong night for equity markets around the world, which saw the Dow Jones and NASDAQ indices climb 0.7% and 0.6% respectively, the ASX 200 is trading more than 1.3% higher at 5975 points. That puts it just 0.4% below its seven-year high of 5996.9 points, recorded just prior to the RBA's meeting last month on 3 March.
As reported by the Fairfax press, a rate cut by or at the May RBA meeting is now fully priced into the share market with investors having piled into the nation's high-yield dividend stocks in anticipation.
Commonwealth Bank of Australia (ASX: CBA), for instance, has surged 0.8% higher to $95.14 and could crack the $100 mark in the near future for the first time in history if the RBA does slash rates today. Its Big Four rivals have each recorded gains in excess of 1% with National Australia Bank Ltd. (ASX: NAB) leading the pack. Its shares are up 1.8% so far.
Although the banks are doing a lot of the heavy lifting, the gains have been widespread throughout the market. Not even a plummeting iron ore price could restrict companies such as Fortescue Metals Group Limited (ASX: FMG) or BHP Billiton Limited (ASX: BHP) which have risen 2.2% and 1.8% respectively. The latter is also being supported by a strong rise in oil prices overnight.
Other stocks rising strongly today include CSL Limited (ASX: CSL) and Woolworths Limited (ASX: WOW), up 1.1% each, while QBE Insurance Group Ltd (ASX: QBE) has extended its run, climbing another 1.9% early in the session.
Which way will the RBA go?
The RBA has surprised the market with each of its decisions this year. In February, it cut interest rates for the first time in 18 months, while the market had been expecting them to remain on hold. Then in March, it was expected to continue easing monetary policy, but ultimately elected to leave rates unchanged.
As it stands, the market is expecting a rate cut today – largely due to the plummeting iron ore price – but Business Insider has reported that just 17 of 30 economists surveyed by Bloomberg do not expect that to happen. That is, most are confident rates will remain at 2.25 per cent for another month.
Whatever happens, you can expect a strong reaction from the market. Watch this space.
