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ASX banks slide as RBA holds rates steady

So, which was the more logical reaction from ASX investors yesterday?

As expected, the Reserve Bank didn’t cut rates and gave us the same old story – rates higher for longer while inflation remains elevated. As a result, bank stocks fell.

Shares in the big four banks declined, with NAB down 3.09%, Commonwealth off 2.85%, Westpac dropping 2.32%, and ANZ losing 1.89%.

This happened despite bank share prices rising since early August, as investors were optimistic, expecting the Reserve Bank not to cut rates.

Perhaps too many investors believed the hype from a small segment of the market that the RBA would be forced to follow the Fed and cut the cash rate?

All four banks closed near their lows for the day on Tuesday, suggesting there might be more downward pressure for the rest of the week.

At Tuesday’s close, NAB, Westpac, and ANZ were near their recent highs, while CBA was nearly 5% lower from its peak of $145.24.

NAB, Westpac, and ANZ all balance their 2023-24 financial years on September 30 (in six days), which might explain their relatively stronger share prices.

Meanwhile, China trims a minor interest rate for the second day in a row, announces another cut to reserve asset ratios (though no date has been set), hints at further rate cuts without providing substantial details, and resource stocks on the ASX rise.

Shares in Rio Tinto (up 3.7%), BHP (up 3.3%), and Fortescue (up 1.8%) gained, despite the measures being minor and not specifically addressing the property crisis dragging the rest of the Chinese economy into stagnation.

Mineral Resources (MinRes), heavily indebted, saw its shares jump 6.5%, followed by Whitehaven Coal (up 6%) and Pilbara Minerals (up 4.7%). Iluka shares rose 6.1%.

Iluka and MinRes were identified by Morningstar as the cheapest commodity stocks on the ASX. However, they are cheap for a reason: weak projects. MinRes carries high debt and has significant investment in underperforming lithium, while Iluka’s heavy earths project near Perth is over budget, and the company is seeking more financial aid from the Federal Government.