The ASX is lower today.
The S&P/ASX200 is lower today, dropping 18.80 points or 0.25% to 7,539.30 after setting a new 100-day high. Over the last five days, the index has gained 0.77% and is currently 1.12% off of its 52-week high.
The bottom-performing stocks in this index are Sayona Mining Ltd (ASX:SYA) and Lake Resources NL (ASX:LKE, OTCQB:LLKKF) down 7.69% and 5.59% respectively.
What’s making news
3 things to watch for the week ahead
Reporting season could drive the index to new highs, the RBA rate decision is unlikely to pause and Disney has handed down earnings. These are the top three things Australians should be watching out for this week in markets according to eToro market analyst Josh Gilbert.
1. ASX200: Reporting season could drive the index to new highs
It’s been a great start to the year for the ASX200 with the index climbing 7%, just shy of record highs. Although the reporting season doesn’t move into first gear until February 13, big names like AGL Energy (ASX:AGL) (ASX:AGK) and Mirvac Group will be handing down results. I
It has been a tough start to the year for AGL, with shares down around 5% after a solid 2022 as electricity prices soared, and now, new CEO Damien Nicks has an arduous task ahead. Estimates are for revenue growth of 25% and earnings of $0.28 but investors will likely focus on its decarbonisation efforts.
Mirvac will also be an interesting one to watch given rising interest rates are seemingly waning buyer demand, but this could be offset by Australian borders reopening and growing demand for rental leases.
In addition, Australia is in a housing crisis, from shortages to sky-high prices, which could help to preserve too much damage to Mirvac’s earnings.
2. RBA rate decision: Unlikely to pause
Australian inflation came in surprisingly strong in Q4 at 8.4% and the Reserve Bank believes this to be the peak, so will this week’s hike be its' last?
The inflation reading may not worry the RBA too much with large temporary shocks in non-essential areas such as travel, up 29.3% in December.
On top of this, we are seeing signs that rising interest rates are squeezing consumers already after its record hikes of 300 bps in eight months dampened retail spending, but this may still not be fully felt by households.
This will likely mean that a pause will be hotly debated, but another hike looks set to be delivered by Governor Lowe, but the peak of this cycle is in touching distance.
3. Mandatory investment in AU: Disney hands down earnings
Within the last week, Australia has announced plans that streaming platforms such as Disney+ and Netflix (NASDAQ:NFLX) will be required to invest in making original Australian content under new laws.
The laws come into place as Disney hands down its earnings this week (February 9), with operating losses from its streaming offering continuing to swell, weighing on margins. The market also expects Disney to see a net loss in subscribers for the first time ever, not helping investor optimism.
Although these new laws wouldn’t mean immense pain for Disney, it does add to production and programming costs that are excessively high.
According to the ACMA, Netflix, Disney+, Amazon (NASDAQ:AMZN) Prime and Stan spent $628 million on Australian and Australian-related content in the 2020-21 financial year. With the new laws, this number looks set to increase, which will benefit the Australian economy but see Disney taking on more unwanted costs.
RBA likely to hike rates
City Index senior market analyst Matt Simpson gives his take on the coming RBA rate hike.
Whilst money markets favour a 25bp hike tomorrow, we shouldn’t discount the potential for a 15bp or even a 50bp hike.
The RBA is expected to raise interest rates by 25bp to 3.35% tomorrow, which would take rates to their highest level since September 2012. If so, it would be their fourth consecutive 25bp hike and ninth back-to-back hike this cycle – which is their most aggressive in history.
Even so, their rates remain well below RBNZ’s 4.25% and the Fed’s 4.75%, which is concerning given both of those central banks started hiking considerably sooner than the RBA and continue to battle high levels of inflation.
Still, there is evidence that the (relatively low) interest rate is starting to bite on the economy. If we look at data since their last meeting, it could be argued the economy is slowing overall.
Manufacturing, services and construction PMIs have been contracting according to AIG (NYSE:AIG), although their latest report is due tomorrow ahead of the RBA meeting. Retail sales dipped for the first time in a year in Q4 by -0.2% q/q, as consumers cut back spending. This could be taken as a sign from the RBA that their tighter policy is working.
Unemployment is 3.5% compared with the RBA’s 3.4% forecast in November, but this is not likely a large enough deviation for it to matter, and employment numbers are robust overall. Wage prices are on target at 3.1% q/q, but inflation is a fly in the ointment for the RBA.
Inflation the fly in the ointment for the RBA
Trimmed mean CPI rose 6.9% y/y compared with the RBA’s 6.5% forecast and inflation rose 8.1% compared with the RBA’s 8% forecast. We will have to wait until Friday’s SOMP (Statement on monetary policy) to see if the RBA has upgraded inflation forecasts – which would be as good as a rate hike if they do.
If this were any other central bank, I’d call for a 50bp hike but based on the assumption they really do not want to hike rates if they don’t need to, I’ll stick with a 25bp hike in February and March.
According to a Reuters poll, 30 out of 31 economists expect a 25bp hike to 3.35% tomorrow, up from 23 out of 27 in January. 19 out of 30 see the cash rate peaking at 3.6%, but I suspect there is a greater chance of it eventually rising above 4% than the consensus currently estimates.
US inflation peaked in July yet the Fed is still hiking and inflation in Australia has not yet peaked. And whilst China’s reopening has brought with it cheers of a soft landing, it is also inflationary which could see CPI reaming higher and stickier than anticipated later this year.
And whilst the employment situation remains robust and inflation remains high, it’s a green light for the RBA continue hiking.
Associate portfolio manager of T Rowe Price’s Dynamic Global Bond Strategy Scott Solomon says of the likely hike …
The Reserve Bank of Australia (RBA) will likely hike at their first meeting in 2023, maybe even once more after that before pausing the seemingly never-ending string of rate hikes. What we are confident of is the terminal rate will be much lower than in the US where the Fed will pause somewhere around 5%.
“The 2-year, 10-year (2s10s) Treasury yield curve slope also demonstrates that the near-term policy outlook is not tight relative to the longer-term outlook as the curve slope is positive in Australia but deeply negative in the US.”
What's next for Australian stock market?
Wealth Within founder and chief analyst Dale Gillham looks at the near-term market movements.
In just 22 trading days so far in 2023, the All Ordinaries Index has really stunned many investors, as it has traded up 8.98% and is still rising. On four of those days, it closed lower while on three it failed to break the high of the previous day, but by any measure, the market had a stellar rise in January.
So, is the market's performance in January an indication of things to come?
If we look back at the last 10 years, the market rose five times in January and fell five times. Of the five where the market fell, only once did it end the year down. In the four years prior to 2023 where it rose, the All Ordinaries Index finished the year higher on three occasions.
While we have to wait until the end of this year to see what transpires, the data is pretty conclusive that regardless of what happens in January, the probability indicates that the market will rise. Given this, it is safe to assume that 2023 will finish higher than it opened.
Even with such a strong rise on the stock market, we still need to expect one or two down weeks in the next month before rising to the next major high. That said, the move up out of the low in October 2022 ran for eight weeks with the market rising 12% before falling away in December 2022. So, while I say we need to expect a fall, it doesn’t mean it will occur, but it is far better to expect it than to be surprised by it.
Finally, I am still confident the Australian stock market will trade up and challenge the all-time high in the not-too-distant future.
Five at five
Magnetite Mines signs MoU to investigate export of Razorback iron ore via Whyalla Port
Magnetite Mines Ltd (ASX:MGT) has taken an important step towards developing the Razorback Iron Ore Project by signing a Memorandum of Understanding (MoU) with Whyalla Ports Pty Ltd to investigate export services.
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Lindian Resources unearths broad high-grade rare earths in Kangankunde drilling
Lindian Resources Ltd (ASX:LIN) has unearthed very broad high-grade intersections of rare earth element (REE) mineralisation in drilling at the Kangankunde Rare Earths Project in Malawi.
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Spenda sows the seeds with investment in blockchain data partner Fresh Supply Co
Spenda Ltd (ASX:SPX) has kicked off the new year with a strategic investment in blockchain data partner Fresh Supply Co (FSCO) to cornerstone its agribusiness strategy.
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Emyria to benefit from landmark TGA decision to down-schedule MDMA and psilocybin; shares surge
Emyria Ltd (ASX:EMD) is likely to benefit from the Therapeutic Goods Administration (TGA)’s to down-schedule MDMA and psilocybin to Schedule 8 'Controlled Medicines' from July 2023.
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Suvo Strategic Minerals validates Pittong hydrous kaolin nameplate capacity; upgrade delivers 245% production lift
Suvo Strategic Minerals Ltd (ASX:SUV) has completed the Pittong processing plant upgrade and optimisation project in Victoria ahead of time and on budget.
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On your six
It has been a big few weeks for small cap companies and their quarterly reports.
Here’s what’s happened in the small cap sectors:
- Can lithium’s meteoric rise continue in 2023?
- Healthcare sector struggles early in the quarter, rallies in December
- Rare earths rush showed no signs of abating in Q4 2022
- ASX tech indices take a breather; off to a strong start in 2023
- Iron ore stocks close December on a tear, but what looms in 2023?
- Gold stocks rise to the challenge in Q4 as gold demand lifts on central bank buying
- Green energy continues to build momentum in a decarbonising market
- Energy stocks – always in fashion? What we saw in the fourth quarter of 2022
- Potash, silica sand and other industrial mineral stocks make the best of global headwinds
The one to watch
Jayride Group ‘in strongest position it has ever been’
Jayride Group Ltd (ASX:JAY) group manager director Rod Bishop tells Proactive the business has enjoyed another growth quarter with new markets driving record passenger trip bookings.
Watch