This week, two things have affected Australian share prices, the expected cut on interest rates and the reduction of oil prices. Companies that are in oil business saw their share prices drop while companies that will benefit with reduced interest rates saw their prices rise. The shares had previously hit a 20- week high before dropping due to falling of oil prices.
Energy companies were the ones affected by reduced share prices after they warned that they would cut earnings and spending. Retailers, banks and other stocks gained due to the expectation of lower interest rates by the Australia Reserve bank.
The S&P/ASX 200 index had risen to its highest up to a third percentage point since 11 September. It then lost the gains by 6.5 points because of effects of reduced oil prices. Some of the energy companies with reduced share prices include Woodside Petroleum, which fell by 2.21%, Santos fell by 4.3% and Oil Search with a 2.8% drop, which occurred after it announced spending cuts and warned about a 2014 impairment charge of about $ 200 million. The share price of Beach Energy fell by 4% after announcing a cut on spending of 20% due to the reduced oil prices.
The shares of companies not dealing in oil performed better. For instance, Fortescue Metals Group shares gained by 5% after their announcement that it continued to operate profitably after their cost cutting. Rio Tinto and BHP Billiton only experienced a fall in share price of 0.5%. The Tie Boutique experienced solid growth at 2.1% by close.
Banks that are expected to benefit with the fall of interest rates by writing more home loans saw a rise in their share prices. The share prices of Australia and New Zealand Banking Group and Commonwealth bank of Australia rose by 0.5 %. The share price of National Australia Bank rose by 0.3%.
The expected reduction of interest rates will reduce borrowing costs and therefore increase sales. This led to a rise of share prices for companies such as Harvey Norman, which saw a rise of 1.7 %, and JB Hi Fi a rise of 1.2%.
Fletcher Building, which is the biggest company that is listed, had a rise of 1.4 % due to signs that the construction market gaining strength. Contact Energy, which is the stock number three had a rise of 1% achieving a six-year high.
By the close of the market on Friday, the price of oil had stabilized booming the stocks of mining and energy companies.