ASX drops on mining sector as China's markets slump again, RBA starts two-day interest rate meeting — as it happened

No wonder Australian stocks defied Wall Street's gains to fall again today — China's mainland stock markets are in meltdown.

Having fallen 6.2% last week, Shanghai's composite index fell as much as 3.5% again today, before moderating those losses to 1.3% around 4:30pm AEDT.

The Shenzhen market was far worse, tumbling nearly 4%, but even that was an improvement on earlier falls.

"The market extended losses after last week's slump," Yang Delong, chief economist at First Seafront Fund Management, told Reuters.

"And there are no signs of bottoming out or stabilising."

There are suggestions that Chinese authorities have stepped in to stem the worst of the losses, with indices dominated by smaller companies posting much steeper falls nearing as much as 10%.

But analysts are calling for more intervention.

"The national team should step up efforts to rescue the market. The market has reached a critical moment."

No surprise then that it was a 2.6% slump for the basic materials (mining) sector that led the ASX 200's 1% decline.

Size was little protection, with BHP (-2.4%), Rio Tinto (-2.2%) and Fortescue (-2.8%) all heavily in the red, although as Rachel posted a little while ago, some of the smaller miners were hit much harder, especially in the gold and renewable energy-related minerals space.

Rachel and I bid you farewell and Nassim (morning) and Kate (afternoon) will have you covered for rates day tomorrow.

I'll be down at the quarterly Statement on Monetary Policy lock-up (which has been moved to the same day as the rates decision) and then at Michele Bullock's press conference, so I'll have some posts from RBA headquarters tomorrow, once they let me out of the lock-up.

As Daniel Ziffer looks at the banking royal commission five years on, Kirsten Aiken speaks to the head of the Australian Banking Association Anna Bligh.

One of the biggest threats to the credibility and trust of the sector today remains the risk of scams.

Also on the program, head of the Federal Chamber of Automotive Industries, Tony Weber, on the government's plans to introduce fuel efficiency standards.

You can watch the program tonight on the ABC News Channel and ABC TV, or stream it any time on ABC iView.

The ASX added close to two per cent during the five trading sessions last week - thanks to two two record breaking days.

But that trend did not continue today. One per cent was wiped off.

Every sector ended in the red - except for healthcare stocks, which limped over the line at the close.

The biggest losers were gold stocks - the worst performer was Silver Lake Resources on the back of a merger announcement with Red 5.

Health stocks were among the top performers.

Tomorrow is another day - with an RBA announcement expected in there for good measure too!

It'll take a few minutes for all the numbers to settle. 

I'll start collating them now....

Companies are preparing to open their books as they present their half year results to shareholders and the market.

Portfolio manager Michael Price at Ausbil Investment Management predicts dividend payments to shareholders will be lower than last year.

"Dividends remain strong in resources, media, REITs and consumer discretionary, however we expect them to be lower than the previous financial year," he's written in a note.

"Conversely, we expect dividends to grow across a number of key areas in the economy, like general insurance and other diversified financials, quality real estate linked to warehousing and automated logistics, select online services, key pharmaceutical and biotechnology leaders."

"Though we do not expect these dividends to be high."

There's a few million Australian borrowers desperate to know the answer to this question — with many clinging on in the hope the answer will be "soon".

Traders are not always right but, unlike many economic commentators, they have serious money at stake, so market pricing is usually a fair place to start.

The last time I checked, on Friday, a rate cut was a 50/50 proposition by the May RBA meeting and 100% priced in for the mid-June meeting.

The market expects at least two rate cuts this year, with a 50/50 chance of a third.

Two cuts would take the cash rate to 3.85%, three cuts takes it back down to 3.6%.

From what I've seen of economist notes, I'd say two rate cuts over the second half of this year, most likely from August or September on, is the most common forecast.

But it's all going to be data dependent and if the data continues on from December's slump the RBA may be forced to act earlier — hence that 50% chance of a May rate cut.

Just don't expect anything tomorrow. Refinitiv market data shows market pricing reflects a 95% chance of rates on hold and 5% for a cut.

Analysts say recent data out of China suggests its economy is gaining momentum — but that it's likely to be short lived.

Today's Caixin China General Services PMI (purchasing managers index) shows service sector activity continued to expand — but the rate of increase was down slightly from December.

There was also a softening in the rate of new order growth.

But employment increased slightly for the second straight month.

The survey found companies were generally upbeat about the 12-month outlook for activity.

But Capital Economics' Julian Evans-Pritchard and Sheana Yue, cautioned in their note today that the recovery is slow and could be short lived.

"It is not clear if the latest rise in the PMIs reflects a further improvement in January or simply the easing of sentiment effects that have been weighing on the surveys.

"Either way, it adds to evidence that growth momentum in China is in the midst of a renewed recovery, albeit one that remains on shaky foundations and is unlikely to be sustained once current policy support is pared back."

Of course, as our major trading partner, we are interested in China's economy, because it's strength or weakness determines their business activity with Australia.

An interesting note from AMP's chief economist Shane Oliver on tax reform.

He describes the original stage 3 tax cuts as a "step in that direction because they reduced the issue of bracket creep" with the stage 3 changes to "unravel this modest reform".

(Other economists specialising in tax policy have a very different view on this, see link to my article at the bottom of this post).

However, Oliver argues stage 3 or the changes to it are only at the edges of the tax reform Australia needs.

He notes that's not because Australian governments collect too much tax.

However, Australia is very reliant on income tax collections — both individual and corporate — which account for a combined 62% of tax revenue.

The OCED average is 34%, although many of those countries also collect separate social security/pension contributions from either employers or employees in addition to income taxes.

 "Income tax is highly distortionary – as it impacts decisions to work and invest — whereas a GST levied at the same rate on all items is far less distortionary," the AMP chief economist explains.

Oliver argues that Australia's top tax rate of 45% plus the 2% Medicare levy is higher than many comparable countries and also kicks in at a lower income level than most similar nations.

"As a result, the Australian individual tax system is highly progressive and this is reflected in the fact that the top 3.6% of tax payers earning more than $180,000 pay around 32% of income tax and the top 10% pay nearly 50% of income tax," he writes.

"ABS data also indicates that only the top 20% of income earners pay more tax than they receive in government transfers."

(Although this can also be seen as an indication that income inequality is high — a report from ACOSS last year using ABS data estimated the top 20% of households receive 41% of all household income and hold 64% of all wealth).

An issue across different income levels has been bracket creep, where higher inflation has pushed more of people's income onto higher tax rates, even though the purchasing power of that income has diminished.

"Bracket creep has been a major contributor to the rise in income tax payments as a share of household income to a record level," Oliver notes.

"Over the last two years increasing tax payments have been more of a drag on income than higher mortgage payments."

Aside from the issues with income tax, Oliver argues that Australia has a raft of anachronistic taxes that are economically inefficient and should be scrapped.

"Key issues are that: the GST applies to a diminishing share of consumer spending; states' stamp duties grossly distort property decisions and worsen housing affordability and should be replaced with land tax; state payroll taxes discourage employment; car tariffs are still levied when there is no car industry to protect; and road user charges need to replace fuel excise to avoid a diminishing share of road users paying for roads."

He concludes that addressing these issues would take the kind of political courage seen a generation ago, but Australians will see reduced productivity and living standards without such change.

There's about an hour of trade left on the ASX so let's see where things are at.

The ASX 200 has slightly improved its losses, but only marginally. It's down 1.04 per cent.

All sectors are still losing ground. The miners continue to be the worst of the lot — down 1.94 per cent.

Real estate is down 1.55 per cent and energy stocks are down 0.91 per cent to round out the bottom three.

Gold certainly is not glittering today, with gold miners filling up just about every spot on the list of 10 bottom movers.

There are some solid growth rates among the top 10 companies on the ASX this afternoon.

Australia's goods trade balance rose in the December quarter, to $30.6bn - up from $23.6bn in the September quarter.

It was slightly lower for the month of December at $11.0bn than it was in November ($11.8bn) - but that beat expectations.

Exports rose 1.8 per cent in the month, while imports rose by a stronger 4.8 per cent.

The rise in exports was thanks to a 0.9 per cent lift in non rural exports and a significant 20.2 rise in the volatile non monetary gold component.

Our biggest export, iron ore, went the other way though, falling 0.8 per cent, while coal was also lower, down by 4.2 per cent. Neither helped by falling commodity prices.

Gas exports though rose by 6.7 per cent.

Rural exports rose by 0.5 per cent -  with meat up 4 per cent and wool up 29.2 per cent. Cereal grains fell 19.5 per cent.

As the RBA board conducts its first meeting for the year - and in a new two-day format - there's broad consensus tomorrow's decision will be a no- event.

According to a poll by Refinitive, there's a 95 per cent chance the bank will keep the cash rate on hold.

But when they make the first cut, and how many times they do that this year, is up for debate.

Economists are mixed.

Deutsche Bank says there's a chance the first cut could be as early as May (you can read more on this in Michael Janda's column from the weekend, which I've linked below for you).

Betashares chief economist David Bassanese (who I interviewed on Close of Business on Friday) thinks the first cut will be in August, with another in November.

The team as HSBC don't think there'll be any cuts this year.

If I kept reading notes sent to me from economists, I could give you just as many more theories.

So, what's your call?  Let me know in the comments.

And will you be watching RBA Governor Michele Bullock's media conference after the meeting tomorrow?

My colleague Daniel Ziffer has published this piece today (and see more on The Business tonight) looking at what's changed since the 2018 banking royal commission.

He's spoken to a number of people involved in the inquiry, as well as regulators.

Banks, regulators and advocates say there's plenty more to be done to protect consumers.

Take a look here.

Hi Rob - thanks so much for your kind comment.

I recorded our first episode of Close of Business for 2024 last Friday.

On the show with me were economist David Bassanese on his call on rates this year, plus market analyst Evan Lucas who discussed what's going on with banks in the US and Japan as offices remain out of vogue.

You can catch up on ABC iView - and thanks so much for watching.

Last week's records have come tumbling down, as the ASX 200 dropped as much as 1.2 per cent at lunchtime.

Every sector is losing value today. The miners are leading the charge - down 1.9 per cent.

Followed by real estate, down 1.6 per cent and energy stocks, down 0.9 per cent.

Silver Lake Resources shareholders clearly don't like the news of the merger with Red 5 (see my earlier post) - its stock is the worst performer today - down more than 12 per cent.

(Red 5 shares remain unchanged.)

Not all companies are losing value though.

Here are the top 10 - it's a bit of a mixed bag, with health companies, tech firms and real estate in the mix.

The ANZ-Indeed Job Ads data recorded a 1.7 per cent month on month increase in January.

But the series has fallen 15.5 per cent from the peak in November 2022, and is down 13 per cent year on year.

(Though it's still 39.9 per cent higher than pre-pandemic levels.)

The biggest drivers for the January jump came from management and software development roles.

But beyond the headline, software development also made the biggest subtraction from annual growth, with January's increase ending 10 consecutive monthly declines.

Overall, job ads across 86 per cent of occupation groups are down over the year.

"There is no doubt the labour market is cooling, but we do not expect to see a significant downturn anytime soon," said ANZ economist Madeline Dunk.

Two WA based gold miners have just announced they're planning to merge.

Red 5 will buy 100 per cent of Silver Lake Resources shares (don't let the name confuse you).

Silver Lake shareholders will receive 3.434 Red 5 shares for every Silver Lake share they hold.

It'll create a company with a market capitalisation of $2.2billion.

The deal, entered into under a  binding Scheme Implementation Deed, will see Red 5 own 51.7 per cent of the merged entity.

Silver Lake shareholders will own the remaining 48.3 per cent.

Red 5 chairman Russell Clark will continue as chair of the new business, while the managing director of Silver Lake, Luke Tonkin, will be the MD and CEO of the merged entity.

The deal will create a company with a combined gold production profile of 445koz for the 2024 financial year,with 4 million ounces of ore reserve.

The new company has four gold mining hubs in Western Australia's goldfields region and Canada.

Luke Tonkin, managing director of Silver Lake said the transaction represents a highly complementary combination of assets and balance sheets.

"Mergers work when each company brings attributes that the other company does not possess, which is undoubtedly the case here. The increased scale, diversification and financial strength of the new company that will be formed via this transaction will be primed for continued strong cash flow generation and further growth."

Mark Williams, managing director of Red 5 added it's a 'logical merger of two mid-tier miners'.

"It represents an exciting inflection point for Red 5 shareholders following the successful development, ramp-up and achieving steady state production at King of the Hills. With a sector leading balance sheet, the merged entity provides a strong foundation for future growth."

The merger is subject to shareholder and regulatory approval. If it all goes ahead, the deal will be implemented in June.

(Between you and me - analysts expect a lot more merger and acquisition activity to take place this year.)

NAB currency strategists Ray Attrill and Rodrigo Catril explain the recent Australian dollar weakness.

"The pull-back in AUD/USD this far in 2024 relative to its end-2023 peaks owes much to the USD impact of the scaling back of market expectations for when the Fed might commence an easing cycle (March cut pricing from 100% at the end of 2023 to less than 25% now, aided by Fed chair Powell describing a March cut as 'unlikely' followed by a blockbuster January payrolls report)," they note.

"But it also reflects a degree of 'irrational exuberance' in terms of the scale of the December run up, which came alongside a sharp rise in US stock markets but which was not mirrored in China-related risk metrics. For much of 2023, the latter was what mattered for the AUD - and thus far in 2024. Hence AUD had flipped from being a G10 outperformer in December to underperformer so far this year, losses exceeded only by the JPY [Japanese yen]."

Hi there blog readers!

I'm diving in for my first post for 2024 and will be with you through the rest of the trading day.

It's not a great day for traders, with the market undoing a lot of the record session it posted on Friday. It's down more than 1% in late morning.

As I ease into another shift here on the blog, I thought I'd test my money knowledge with this quiz by my colleagues at ABC Heywire.

Why don't you give it a go and let me know in the comments how you found it.

In the meantime, I'll bring you the market and economic news of the day in upcoming posts.

I look forward to your company.

SQM Research has put out its latest data on property listings for January.

Fewer properties were listed for sale last month than in December, but that's normal for when most buyers and a lot of real estate agents are on holiday.

The more relevant figure is how listings are tracking compared to the same time a year ago.

That number is higher across five capital cities. The ones where it's lower — Brisbane, Perth and Adelaide — are, not coincidentally, those where property price growth has been highest recently.

"The country recorded a typical January hiatus in the housing market," SQM's managing director Louis Christopher notes.

"However, forward listings suggest that February will be a very strong month for housing activity. Auction numbers are up by 31% compared to this time, last year."

The rise in listings should be good news for buyers, who have been struggling for choice and forced to bid up the price on what's available.

But it looks like bad news for a lot of sellers, with Christopher noting a "concerning trend" of rising distressed sales listings in NSW and Victoria.

"The nine per cent rise in NSW for the month was very abnormal and suggests some vendors in NSW are increasingly desperate to offload their properties."

SQM records 1,315 listings in NSW with the ad containing one or more key terms indicating it is a "distressed" sale, that's up 16.3% on the same time last year.

Victoria had 906 distressed listings, up 17.8%, while Tasmania had 92, up 12.2% and the NT 112, up 19.1%.

Distressed listings were down over the past year in all the other states and territories, although Queensland still had the largest number at 1,695 properties.