ASX hits four-week low as commodity stocks slip on weaker prices: as it happened

The S&P/ASX 200 has closed town today -1.09% to 7414.8 points and the All Ordinaries was down -1.07% to 7647.1 points.

Utilities (-1.74%), materials (1.54%), energy (1.47%) and health care (1.37%) all in the red.

A fall in commodities due to concerns about weaker demand from China sent the Australian dollar to a one month low, buying 66.17 US cents at close.

The top performing stocks were semiconductor company Weebit Nano (+3.43%) and gambling company Star Entertainment Group (+3%).

The lowest performing stocks were Lovisa Holdings (as we wrote about this afternoon) -5.38% and South32 Limited (-4.49%).

Britain's FTSE 100 index is expected to open lower.

And ahead of the World Economic Forum, AstraZeneca has reassured investors that it hasn't seen supply issues so far due to Red Sea shipping disruptions.

That's all from me today. My colleague Nassim Khadem will be with you tomorrow morning

Mortgage holders have faced successive interest rate rises since May 2022 — and it's put many of them in a very difficult financial position.

New research this afternoon from Roy Morgan shows mortgage stress eased for the second straight month in November, with 1,490,000 or 29.9% of mortgage holders now classified as 'At Risk' of mortgage stress.

(The decrease is good news but it's worth noting that figure is still high — in fact near the record high reached in September 2023 when 1,573,000 Australians were deemed 'At Risk' of mortgage stress)

Despite successive rate rises, the drop in mortgage stress is credited to increased household incomes, increased employment and a reduction in amounts borrowed and outstanding.

Roy Morgan CEO Michele Levine says if interest rates go up again it would put more pressure on households:

“If the RBA does raise interest rates by 0.25% in February, Roy Morgan forecasts mortgage stress would increase to 1.53 million mortgage holders (30.8%) considered ‘At Risk’. Although concerning, this level would still be below the high above 1.57 million reached in September 2022."

If you're following US politics, head over to our election blog, where our reporters are on the ground capturing the mood on the campaign trail and covering today's events in Iowa, where Donald Trump has won the Republican presidential caucuses.

Now let's zoom out for a minute to take a bird's eye view of the state of the world.

As this analysis piece on the website today shows, recent events suggests the global instability of the past few months won't be going away any time soon.

It's not surprising when you look at what is happening at the moment, from China to Taiwan to Israel and Gaza to Yemen, as well as Russia and Ukraine.

The gloomy conclusion of this piece is that global uncertainty and instability will be an ongoing theme in 2024.

You can read more here:

As workers head back to the office (or laptop) after the summer break, we're starting to hear a lot more again about the hybrid work debate.

When office workers were ordered to work from their couch around four years ago at the start of the pandemic, it changed the way we thought about work, the purpose of the office and work-life balance.

Then, when employees were ordered back to the office after lockdowns, many (like this lazy worker, pictured below) said: No thanks.

As this article points out, employers are leading the push to get everyone back to the office, while employees tend to favour a hybrid model where they can work at least partly from home.

A report by KPMG found two-thirds of CEOs now expect most staff to be back in the office full-time in the next two to three years.

And it's reignited debates about productivity, company culture, collaboration and expectations in this "post-COVID era":

It's been a tough run today for Australian fast fashion jewellery brand Lovisa (LOV.AX), which has had its worst day in four months, with shares falling 5.88% to $22.56 this afternoon.

Analysts at UBS downgraded Lovisa Holdings from "buy" to "neutral" because it says data suggests the chain is seeing slowing store growth coupled with easing like-for-like sales growth.

Lovisa is currently the worst performing stock on the benchmark.

The brand sells "fashion" jewellery targeting a younger demographic and has its sights set on the global market, opening hundreds of stores around the world in the past few years.

The World Economic Forum is happening in Davos, Switzerland this week — but even though the annual meeting hasn't started just yet, there's no shortage of big business executives making headlines.

The CEO of Ingka Group, which owns most of IKEA's stores around the world, is one of them, who's come out and said the furniture retailer is committed to its planned price cuts, even with the disruptions to shipping in the Red Sea pushing up costs.

"Our commitment is to make sure that we prioritise investing in lower prices for our customers," Jesper Brodin told the Reuters Global Markets Forum.

Even with the disruptions on the Red Sea, he said IKEA has enough stock to absorb any supply chain shocks that may arise, including longer and more expensive journeys re-routed around the southern tip of Africa.

Although the higher transport costs have fuelled concerns of inflationary pressures as prices were starting to ease, Mr Brodin said he still expects "quite significant deflation" further upstream in its supply chain.

Mr Brodin also said that even though lower prices may hurt IKEA's profits, he noted that the company tends to take market share when consumers are faced with greater financial strain.

"This is not a year for us to optimise profits," he said.

"This is a year to try to navigate on a thinner profit, but to make sure that we support people."

The union supporting workers at Sara Lee's factory on the New South Wales central coast says it will meet with staff this week as administrators continue to search for a buyer.

The frozen dessert business went into voluntary administration last October with creditors owed up to $55 million.

Erryn Cresshull from the United Workers Union says staff at the Lisarow factory are being kept in the dark.

"We had asked for weekly updates from the administrator to the workers … We understand that hasn't happened since before Christmas," she said.

"It's a good thing sometimes to really look for a good buyer. However, for our members it means that they are just hanging on, not knowing what's going to happen.

"The morale is really low. Workers are really struggling. They don't know if they're going to have a job in four weeks."

The ASX has hit a four-week low in the first half of the trading day, falling by 1.1% to 7,412 points as of 12:30pm AEDT.

(For live figures, jump to the top of the blog.)

The reason for the slip is all because of commodity stocks, which are lower due to underlying prices, following on from Rio Tinto's December quarter update.

Heavyweight miners have topped losses on the benchmark, dropping as much as 1.3% to hit their lowest level since December 7.

Iron ore future prices slipped on Monday as top consumer China held its medium-term interest rate steady, defying market expectations.

Rio Tinto has also dropped nearly 1% to its lowest level since December 7, despite reporting its second-highest-ever iron ore shipments in 2023.

(As mentioned earlier in the blog, Rio Tinto is also expecting stimulus measures in China to drive a slow recovery in the world's biggest steel user.)

BHP and Fortescue have also fallen by 1.2% and 1.3%, respectively.

Energy stocks are down 0.9% and are on track for their biggest daily drop since December 5, while Woodside Energy has lost as much as 1.2%, its biggest intraday loss in a month, and Santos  has dipped 1.4%.

Hey John,

There are a few inquiries that are underway (or are getting underway shortly) looking into supermarket prices and price gouging allegations — but it can get a bit confusing, so let's step though them!

The first one that's currently underway is a union-backed inquiry into price gouging allegations:

• This is backed by the ACTU, and is chaired by former ACCC boss, Professor Allan Fels
• It started in September last year, and has been travelling around the country holding hearings 
• Because it's backed by the unions though, business groups have criticised the validity of the inquiry
• The final report is due to be made available sometime this year

Then there's the Senate committee looking at supermarket prices:

• This inquiry hasn't started yet as the committee is still receiving submissions (they close on February 2)
• The Senate committee inquiry is examining the "price setting practices and market power of major supermarkets"
• The committee is currently scheduled to present its final report by May 7
• Because submissions are still being accepted, there are no public hearing dates scheduled yet
• You can find more information about this particular inquiry here

Last week we also heard about the federal government's review into how supermarkets conduct their business:

• That's being led by former trade and competition minister Craig Emerson, who was quietly appointed to examine the grocery code just before the Christmas break and will build on work already done by Treasury
• The grocery code review will assess the effectiveness of improving relationships between supermarkets, distributors and suppliers (including farmers)
• The review will also assess whether the code should be made mandatory (currently it's only voluntary, but has been signed onto by ALDI, Coles, Woolworths and wholesaler Metcash, as well as some suppliers to those businesses)
• A review of the grocery code is required before it automatically "sunsets" next April
• The grocery code review is due by the end of the financial year

There's also growing calls for the ACCC to examine supermarket pricing, but that hasn't gotten off the ground yet — despite the mounting pressure from farmers and consumers, which has seen talks take place between Treasurer Jim Chalmers and the consumer watchdog.

(Meanwhile, the ACCC is reportedly also considering suing a big supermarket chain for breaching consumer law, according to an interview with chairwoman Gina Cass-Gottlieb in the AFR today.)

CBA commodity analyst Vivek Dhar has a note out this morning on the fall in iron ore prices, which continued yesterday with a 1.3% decline to $US128/tonne.

Iron ore prices peaked at $US144/tonne earlier this month, but Mr Dhar says a correction is "underway" and "likely has more to go".

"China's steel mill margins have slumped as iron ore prices have increased," he observed.

"Typically negative steel mill margins will weigh on iron ore prices, albeit with some lag historically, as the economic incentive to produce steel and consume iron ore is reduced.

"The last time that steel margins in China were this negative or lower for a sustained period in late June 2022, iron ore prices eventually dipped below $US100/t. The current downward correction in iron ore prices could threaten the same level temporarily too.

"However, once steel mill margins stabilise, we think iron ore prices are likely find support in the $US100-$US110/t range, waiting in anticipation for China's policy direction for 2024.

"China's 'Two Sessions' policy meetings in March, where policymakers announce China's economic growth targets for 2024, is shaping up to be a key event for iron ore and other commodities. We think policymakers will announce an economic growth target of around 5% in 2024, similar to its target last year."

Rio Tinto is maintaining its iron ore targets for 2024 even though there has been weakening demand coming out of China's real estate market, saying it expects the country's stimulus measures to drive a slow recovery in the second half of the year.

In a statement to the ASX this morning, the company said China's stimulus measures were already supporting growth in commodity prices, and it expected the country — which is the world's biggest user of steel — to see an economic uptick in the near term.

"Stimulus measures are expected to drive a gradual recovery in 2024, albeit weighted towards the second half, with [China's] real estate sector remaining weak," it said.

Rio Tinto reported a 3% rise in full-year shipments to a five-year high as a result of greater efficiencies and more production coming out of its Gudai-Darri mine in Western Australia.

In total, Rio shipped out 331.8 million metric tonnes (Mt) of iron ore last year, in line with its earlier guidance and analyst expectations, and expects to ship between 323-338 Mt again this year.

Rio Tinto also expects to see an economic recovery in the euro zone later this year, as it looks increasingly likely that interest rates have peaked.

Westpac's long-running consumer sentiment survey shows Australians started the new year stuck around recessionary levels of gloom.

The index reading of 81 was down from 82.1 in December as any Christmas cheer evaporated. A reading of 100 indicates optimists equal pessimists.

Westpac senior economist Matthew Hassan said the reading was in the bottom 7% of all observations since the survey started in the mid-1970s.

"More pessimistic starts to the year have only been seen during the deep recession of the early 1990s," he added.

That is despite the percentage of Australians expecting another rate rise falling to its lowest level since April last year, albeit still a majority at 52%.

The decline in confidence seems to be mainly due to immediate cost of living pressures.

"Family finances look to be coming under renewed pressure," Mr Hassan observed.

"The 'finances compared to a year ago' sub-index dropped 7.6% to 63.0, unwinding most of the 11% improvement seen over the three months to December," he noted.

"Those in low- and middle-income brackets reported the biggest deterioration in the month."

The increasing confidence that rates might have finished rising improved the short-term outlook for households.

"Both the 'economic outlook, next 12 months' and the 'finances, next 12 months' sub-indexes posted modest lifts, up 3.9% to 81.8 and 2.9% to 93 respectively."

But the majority of Australians remain pessimistic about the longer-term outlook.

"The 'economic outlook, next 5 years' sub-index also took a hit, falling 6.1% to 89.1," Mr Hassan said.

"Here, the sub-group detail shows the biggest moves were amongst those in younger age groups and living in rental accommodation."

As the futures predicted, the ASX has opened lower this morning, dropping -0.6% to 7,448 points as of 10:30am AEDT.

(For live figures at any time, head to the top of the blog.)

Academic and educational services is the only sector in positive territory, up 0.4%, while the rest are in the red.

Consumer non-cyclicals is the biggest (early) loser so far, down 1%, followed by energy (-0.8%), basic materials (-0.7%), consumer cyclicals (-0.7%), utilities (-0.7%) and healthcare (-0.6%).

More modest losses have hit industrials (-0.4%), real estate (-0.3%), financials (-0.2%) and technology (-0.1%).

As for the top five performers so far this session:

• Charter Hall +2.3%
• Neuren Pharmaceuticals +2.1%
• Paladin Energy +1.5%
• Genesis Minerals +1.2%
• Qantas +1.1%

And the bottom five performers:

• Super Retail Group -4.3%
• Karoon Energy -4.2%
• Lovisa Holdings -3.7%
• Core Lithium -3.6%
• Healius -3.2%

DP World claims striking workers have cost the economy more than $1 billion in shipment delays, and is asking the government to step in.

Industrial Relations Minister Tony Burke will meet with representatives from DP World later this week, but the chances of a resolution coming from that are somewhat slim.

DP World wants the federal government to use its powers under the Fair Work Act to intervene in this matter, but there's still no indication it will take that step.

My colleague Nassim Khadem took a look at the issue yesterday — you can watch it below 👇

There's no doubt that plenty of renters around the country are in a world of hurt right now, with data showing that asking rents have risen by 8.3% in the past year — after a 9.5% jump the year before and a 9.6% increase the year before that.

But looking at the change in house prices and asking rents, 2023 was the first time in the past 10 years where rent rises outpaced capital gains on housing without home values falling.

So, what's going on? My colleague Michael Janda has analysed the situation and (spoiler alert) points out there is a massive problem at hand — a massive misallocation of capital or, as he writes, "a waste of money".

You can have a read below 👇

Staying with developments from overnight, and oil prices weakened slightly due to the conflict in the Middle East having a limited impact on supply for now.

Despite price increases last week, Brent crude futures have weakened slightly as a result, with strikes in the Red Sea and broader conflict in the Middle East not negatively impacting the supply of oil.

"The realisation that oil supply has not been adversely impacted is leading last week's bulls to take profit, with the move down somewhat exacerbated by a slightly stronger dollar," Tamas Varga from oil broker PVM told Reuters.

It follows several tanker owners avoiding the Red Sea and multiple more changing course after the US and Britain launched strikes against Houthi rebels, after their attacks on shipping in response to Israel's war against Hamas in Gaza.

• ASX SPI 200 futures: -0.3% to 7,445 points
• Australian dollar:  66.58 US cents
• On Wall St: Dow -0.3%, S&P 500 +0.1%, Nasdaq +0.02% (Friday)
• In Europe: Stoxx50 -0.6%, FTSE -0.4%, DAX -0.5%
• Spot gold: +0.3% at $US2,054/ounce
• Brent crude: -0.3% at $US78.06/barrel 
• Iron ore: -1.3% at $US128/tonne
• Bitcoin: -1.6% at $US42,740

(Prices correct at approximately 8:30am AEDT)

Good morning, it's Tuesday January 16 and you're reading the ABC's business and markets blog.

It was a very subdued session for the markets overnight, thanks to US markets being shut for Martin Luther King day — so all the focus was on Europe, and it wasn't particularly positive there either (they were down about 0.5% when they closed).

The latest GDP data for Germany was released, however, coming in at -0.3% for the quarter and the year, meaning its economy has contracted.

However, there was a slight uptick in the September quarter which was revised to flat (instead of the initial -0.1%), so the German economy has dodged a technical recession — aka, two negative quarters of economic growth.

Still though, that -0.3% performance for Germany's economy, driven by persistently high inflation, higher energy prices and weak foreign demand isn't exactly great news — especially given the country is considered Europe's major industrial producer.

Those GDP numbers for Germany came despite comments from European Central Bank officials, who have been challenging market expectations for interest rate cuts in the first half of this year — if at all in the 12 months ahead.

So, where does that leave us on the local front today?

We can expect to get off to a weaker start when trade begins a little later this morning, with futures pointing to a -0.3% drop.

It might be a subdued start, but you know the drill — get a coffee, settle in, and let's see if that overseas weakness sticks around for us today.