The Match Out: ASX flat - Banks rally, miners fall as the RBA review is released

Another tepid session for stocks with the ASX down early before a spirited fightback saw the market trade up for the day, before some selling took hold into the close. At this stage, the market simply feels tired after its stellar run as opposed to being bearish and swamped with high-volume selling. Today the winners actually outnumbered the losers (just), although a ~2% decline by the material sector is always going to weigh, offset by a good move higher by the banks.

• The ASX 200 finished off -3pts/ -0.05% at 7362
• The Financial sector was best on ground (+1.25%) while Consumer Discretionary (+1.04%) & Property (+0.77%) were also strong.
• Materials (-2.03%) and Real-Estate (-0.47%) the weakest links.
• The RBA Review was released with 2 key changes which we’ll detail below, but ultimately, it's unlikely the review will materially change the outlook for the cash rate in the near-term, given the changes are not immediate and therefore, there is likely to be a minimal market impact.
• IRESS (ASX: IRE) -2.15% held an investor day today, they maintained guidance but announced plans to cut 10% of the workforce to save $32 million a year, and wrote down a portion of their UK business.
• Bank of Queensland (ASX: BOQ) +1.11% released a largely pre-announced HY report, numbers showing arrears are picking up and competition for mortgages remains fierce, likely weighing on NIMs moving forward.
• G8 Education (ASX: GEM) +4.98% held their AGM, and no new negative news was positive – we own in the Income Portfolio
• Rio Tinto (ASX: RIO) -2.32% reported a mixed set of production numbers this morning, Iron Ore was strong with a record start to the year.
• Brambles (ASX: BXB) unchanged despite upgrading its profit forecast.
• Santos (ASX: STO) -0.42% released 1Q23 update, revenue was lower than 1Q22 and 4Q22 on lower production and lower realised prices.
• Iluka Resources (ASX: ILU) -1.42% fell despite a stronger-than-expected quarter and zircon prices have unexpectedly increased again – Iluka saying prices will rise US$50/t in Q2 2023
• Iron Ore was ~2% lower in Asia today weighting on Fortescue (FMG) -0.88% & BHP -2.56%
• Gold was flat at $US1996 at our close.
• Asian stocks were mixed Hong Kong up +0.41%, Japan +0.17% while China fell -0.21%
• US Futures are lower, not by much  

ASX 200

G8 Education (GEM) $1.265

GEM +4.98%: Held their AGM today and while there was no real new news, that is a positive outcome for a business undergoing a turnaround amid challenging operating conditions. The childcare operator has done a very good job in recent times to improve occupancy which will continue to drive a recovery in earnings, while maintaining a solid balance sheet and more recently, buying back stock. 

Today’s share price reaction highlights the progress being made and supports the view MM took to remain patient in the position we held in the Income Portfolio.

Rio Tinto (RIO) $120.33

RIO -2.32%%: shares in the iron ore miner softened today, though largely traded in line with peers following a mixed 1Q production report. The iron ore front was strong, a record start to the year for Rio which usually sees a seasonally weak March Period. Production was up 11% vs 1Q22, but down -11% vs the prior quarter. Bauxite production was soft on the back of heavy rainfall, but the weakest segment was copper mostly thanks to snowfall at their Kennecott site reducing mine throughput. 

Escondida production was up 6%, however, they continue to face geotechnical issues at the mine leading to the company downgrading copper guidance by ~10%. Prices remain robust, and cost guidance was maintained.

RBA Review – Two major changes

1) RBA Board to be split into Monetary Policy and Governance. The review has two significant implications. Firstly, the RBA Board will split into two. This will be closer to the model used by some other major global central banks, like the Bank of England. The RBA will establish a Monetary Policy Board (MPB) that is separate to a Governance Board (GB). The MPB will make decisions on monetary policy, including on the cash rate. The frequency of meetings will be reduced from 11 per year, to 8. The meetings and decisions will be much more transparent. 

There will now be a press conference after each meeting. Board members will occasionally speak publicly about the work of the Board. The post-meeting Statement will now include unattributed votes on the cash rate decision, and use economic expertise in decision-making, including engagement with RBA staff. Meanwhile, the GB will have an external chair, and make decisions on corporate governance, including the RBA’s organisational strategy, finances, strategic staff planning, and risk management. However, the GB will have no role in monetary policy, financial stability, or payments policy.

2) RBA mandate clarified to dual objectives of price stability & full employment. Secondly, the Review will "strengthen the RBA’s mandate and clarify that Australia’s monetary policy framework will have dual objectives of price stability and full employment". However, Governor Lowe said this means 'no change to the RBA's objectives'. 

Most importantly, the Review found "The price stability objective in the framework should continue to be to keep [CPI] between 2 and 3 per cent". However, "the RBA should aim to return inflation to around the midpoint of its target when significant deviations occur, as this maximises the chance that the target is met." The current wording includes ‘on average, over time’; which "makes it harder to say whether or not the target is being met, limiting accountability, and should be dropped." 

Indeed, the review found the RBA should be required to explain "how quickly it is aiming to return inflation to around the midpoint of the target, its assessment of full employment, and how, if at all, financial vulnerabilities or other considerations have factored into its decision." Meanwhile, Treasurer Chalmers said the RBA considers full employment is in the low 4's, and Treasury also assume 4¼%.

Broker Moves

• Accent Group Cut to Neutral at Jarden Securities; PT A$2.50
• Atlas Arteria Cut to Sector Perform at RBC; PT A$6.75
• Star Entertainment Raised to Accumulate at CLSA; PT A$1.50
• a2 Milk Cut to Sell at CLSA
• Dalrymple Bay Cut to Hold at Morgans Financial Limited

Major Movers Today

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