The ASX is expected to begin the new financial year on the rise after it closed the last FY with a near-10% gain.
Last week the ASX200 finished 1.47% higher at 7,203, to end the first half of 2023 with a modest 2.34% gain.
The IT (+4.52%), Consumer Discretionary (+2.82%) and Real Estate (+2.63%) sectors helped lift the index, while on the flipside the Utilities (-1.86%), Health Care (-0.48%) and Consumer Staples (-0.13%) dragged.
Consumer-facing stocks were strong performers with City Chic (22.58%), Adair’s (17.04%) and Baby Bunting (+14.05%) among last week’s winners. However, Bega Cheese (-18.8%), Link Administration (-11.64%) and Sezzle (-8.33%) all had dramatic falls.
The local market will now wait with bated breath to see what the Reserve Bank of Australia does with interest rates at its monthly meeting tomorrow. Odds are in favour of a further hike.
Over on Wall St, Apple became the first company to close with a US$3 trillion market cap.
IG markets analyst Tony Sycamore said of the US finish, “US stock indices fittingly ended Q2 on a strong note, as softer-than-expected inflation data bought the finishing line for the Fed’s tightening cycle into view.
“The PCE Price index fell to 3.8% YoY vs a downwardly revised 4.3% in April - the lowest reading since April 2021. The Feds preferred measure of inflation, core PCE, eased to 4.6% YoY compared to market expectations of 4.7%.”
What happened last week
Here's what we saw (source Commsec):
US markets
Rose on Friday, as US inflation showed signs of cooling, fuelling hopes the US Federal Reserve could be near the end of its interest rate hiking cycle.
Apple shares (NASDAQ:AAPL) rose by 2.3% hitting a US$3 trillion market valuation for the first time. The biggest boosts to the S&P 500 index behind Apple were Microsoft (NASDAQ:MSFT), Nvidia, Amazon (NASDAQ:AMZN) and Meta Platforms. These shares added between 1.6% and 3.6%.
Carnival (NYSE:CCL) shares jumped 9.7% after Jefferies upgraded the cruise operator's stock to "buy" from "hold". But Nike (NYSE:NKE) shares fell 2.7% after it forecast first-quarter revenue below market expectations.
The Dow Jones index rose by 285 points or 0.8%.
The S&P 500 index gained 1.2% and the Nasdaq index added 197 points or 1.5%.
In June, the Dow climbed 4.6%, the S&P 500 lifted 6.5% and the Nasdaq surged 6.6%.
For the June quarter, the Dow rose by 3.4%, the S&P 500 added 8.3% while the Nasdaq climbed 12.8%.
Over the first half of 2023, the Dow added 3.8%, the S&P 500 popped 15.9% for its best first half since 2019. And the Nasdaq soared 31.7%, for its best first half since 1983.
European markets
Advanced on Friday, with real estate (+1.7%) and industrials (+1.4%) shares leading gains. The annual headline eurozone inflation rate dropped from 6.1% in May to 5.5% in June (survey: 5.6%).
The continent-wide FTSEurofirst 300 index rose by 1.2%, posting gains of 2.4% in June, and ended the second quarter up 1.2%.
European shares jumped 9.1% in the first half of the year.
The UK FTSE 100 index added 0.8% on Friday with bank stocks up 0.9%. The index was up 1.2% in June but fell by 1.3% in the second quarter.
UK shares lifted just 1.1% in the first half of 2023.
Currencies
Currencies were stronger against the US dollar in European and US trade.
- The Euro rose from US$1.0834 to US$1.0929 and was near US$1.0910 at the US close.
- The Aussie dollar lifted from US66.13 cents to US66.71 cents and was near US66.65 cents at the US close.
- The Japanese yen firmed from 144.89 yen per US dollar to JPY144.22 and was near JPY144.30 at the US close.
Global oil prices rose on Friday after Russia's Deputy Prime Minister Alexander Novak ordered officials to consider introducing quotas for the export of oil products, potentially curtailing global crude supply.
- The Brent crude price rose by US56 cents or 0.8% to US$74.90 a barrel.
- The US Nymex crude price gained US78 cents or 1.1% to US$70.64 a barrel. For the week, Brent rose by 1.4% with the Nymex up 2.1%.
- The copper futures price rose by 1.7% but the aluminium futures price slid 0.5% as Chinese smelters ramp up production. For the week, copper dipped 1.7% and aluminium shed 2.5%.
- The gold futures price rose by US$11.50 or 0.6% to US$1,929.40 an ounce.
- Spot gold was trading near US$1,919 an ounce at the US close. Gold fell by less than 0.1% over the week.
- Iron ore futures shed US$2.20 or 1.9% to US$111.71 a ton after Chinese steel makers warned about soft demand and pressure to cut costs. Over the week, iron ore fell by 0.8%.
eToro analyst Josh Gilbert gives us his weekly take on what to watch this week.
1. RBA rate decision - another hotly contested decision
The week sees what’s likely to be another hotly contested rate decision from the RBA. The cash rate currently stands at 4.1% but the RBA’s hawkish bias looks set to see another 25 bps hike next week. However, the latest monthly inflation reading will throw a spanner in the works, with a significant decline from 6.8% in April to 5.6% in May.
There are clear signs that inflation is moving in the right direction and that should continue in the months ahead, but inflation is still well above the RBA’s target level, retail sales were stronger than expected this week and the labour market is still red hot.
Given Philip Lowe’s aggressive take on inflation so far in 2023, I’d be surprised to see anything but a hike. The good news is that markets are already pricing in another two hikes from the RBA and we’re unlikely to see a higher cash rate than 4.6% unless inflation and other data points stall significantly in the months ahead.
2. Aussie retail investors have faith in financial markets
It’s been a great start to the year for equity markets locally and overseas. But, central banks globally, but particularly in Australia, have been quick to remind us that bringing inflation down, by whatever means, is their mandate, and that is probably taking some wind out of investors' sails.
eToro’s latest Retail Investor Beat Survey found that retail investors are still backing financial markets to perform long-term. Over the last three months, 26% increased the amount of money they regularly contribute to their portfolio, while just 11% scaled back their contributions.
The picture is similar over the next three months, with 31% planning to up contributions while 10% say they will reduce them. Tech stocks have been the place to be this year, and retail investors are sticking with their long-standing bullishness, reflecting their younger and digital native roots. AI has created a buzz in the technology space not seen for years, and clearly, retail investors are excited about what’s ahead.
What’s happening with small caps?
The one-year return for the S&P/ASX Small Ordinaries was 4.86%.
A few small caps have already delivered news for the morning. You can read the full reports on Proactive throughout the day.
Nova Minerals Ltd (ASX:NVA, OTCQB:NVAAF) continues to unlock the Estelle Gold District with a 15,000 metres drill program at the RPM and Train areas. The company is looking to further grow the size and confidence of the already established 9.9 Moz gold resource.
MetalsGrove Mining Ltd (ASX:MGA) has completed its maiden reverse circulation drilling program at the Bruce Rare Earth Element (REE) Prospect, Northern Territory.
St George Mining Ltd (ASX:SGQ) has started its maiden drill program at the Ajana Project in Western Australia.
Exploration at Kin Mining NL (ASX:KIN)’s flagship 100%-owned Cardinia Gold Project has underpinned a further significant increase in the project-wide mineral resource estimate to more than 1.5 million ounces.