The ASX is set to fall today as Friday’s slide continues. On the day, the benchmark S&P/ASX 200 finished down 0.1% to 7,822 points but still added 0.7% over a week that saw the mining sector do much of the heavy lifting.
Last week’s solid performance was driven by record highs on Wall Street and gains in key commodity prices.
The strongest performing sectors were Energy (+4.07%), Materials (+3.30%), Real Estate (+1.43%) and Consumer Discretionary (+0.22%). The sectors that underperformed were Utilities (-1.19%), IT (-1.08%), Industrial (-0.59%) and Financial (-0.53%).
At the individual stock level, the biggest losers were Baby Bunting Ltd (ASX:BBN) (-10.32%), the Reject Shop Ltd (ASX:TRS) (-8.85%) and Pro Medicus Ltd (-8.64%). The top performers were Whitehaven Coal (ASX:WHC) Ltd (+17.25%), Drone Shield Ltd (+13.37%), Nuix Ltd (+13.31%) and Zip (ASX:ZIP) Ltd (+13.01%).
The local economic calendar is relatively quiet this week, with key events being housing finance data and Consumer and Business Confidence surveys.
Higher-than-expected inflation and the potential for an additional RBA rate hike before the end of the year are expected to negatively impact consumer sentiment, potentially offsetting the positive effects of the stage 3 tax cuts.
Preliminary forecasts suggest the Consumer Sentiment index will decrease by 0.3% in July, to 83.4. The Australian rates market begins the week pricing in an 8bp (32% chance) likelihood of an RBA rate hike in August.
Over in the US
The S&P500 and Nasdaq ended the week at new record highs due to cooler labour market data, which increased expectations of a potential Federal Reserve rate cut in September. Over the week, the Nasdaq rose by 3.60%, the S&P500 by 1.95% and the Dow Jones by 257 points (0.66%).
Non-Farm Payrolls data on Friday indicated that the economy added 206,000 jobs in June, meeting expectations. However, job numbers for May and June were revised downwards by a total of 111,000.
The unemployment rate rose to 4.1% from 4%, alongside an increase in the participation rate to 62.6% from 62.5%. Average hourly earnings increased by 3.9% year-on-year in June, marking the lowest growth rate since June 2021.
The US rates market is currently pricing in a 19 basis point rate cut by the Fed in September, with a total of 53 basis points of cuts expected by year-end.
Key events for the upcoming week include the release of CPI and PPI data for June, Fed chair Powell's semi-annual testimony on Monetary Policy to the Senate Banking Committee and the start of the US Q2 2024 earnings season.
Headline inflation for CPI is preliminarily expected to decrease to 3.1% year-on-year from 3.3%, while core inflation is expected to remain stable at 3.4% year-on-year.
European market
European sharemarkets generally eased on Friday, although French, German and UK indices posted gains for the week.
Investors took the latest political developments in stride while being encouraged by the prospects for lower interest rates in the medium term.
European banks, which had seen acute selling pressure recently, were among the most improved for the week. Societe Generale (EPA:SOGN) rose by 8%, while Unicredit (BIT:CRDI), Credit Agricole (EPA:CAGR) and BNP Paribas (EPA:BNPP) each increased by 7%, alongside gains in real estate and construction sectors.
The continent-wide FTSEurofirst 300 index eased by 4 points or 0.2% on Friday; however, over the week the index improved by 75 points or 1.4%. In London, the UK FTSE 100 index fell by 37 points or 0.5% on Friday but over the week it gained 0.5%.
Speaking of the latest political developments investments expert James Igoe, head of the Manchester office at Redmayne Bentley had the following to say about Labour’s General Election victory.
“While a Labour victory was expected, it is hoped the result could inspire a UK stock market revival. It is crucial the party makes the UK economy more attractive and enhances liquidity in the market, especially from overseas investors.
“Foreign investors have, for some time, considered the stock market to be a function of the UK’s leadership. As such, it has significantly suffered during times of stress, reducing allocations to UK equities and pension funds. Firms such as ARM listing abroad are a reflection of this in recent times.
“This has not been helped by the volatility in sterling and gilts. After Liz Truss’s mini-budget in 2022, volatility in UK gilts was extremely distressing for many and some of the highest in recorded history.
“Arguably, a Labour government reduces the risk premium on UK stocks if it can deliver greater stability over its term in office.
“We expect to see an increased focus on cleaner energy with the creation of the £8.3 billion Great British Energy fund and co-investing in technologies to boost the production of eco-friendly alternatives. This will likely mean the demand for nuclear power will surge. However, these environmentally-friendly approaches are a potentially positive step for UK commerce.
“Given the party’s pledge to build 1.5 million new homes, this will present a huge number of opportunities in the housing sector. We expect this will take time to deliver, given the constraints around planning and the pricing dynamics of land and materials. This may continue to impact on the ability of housebuilders to deliver new housing targets.
“Ultimately, it is vital the new government rapidly revitalises the stock market, attracts companies to list in the UK, and delivers true economic growth to underpin domestically-represented businesses.”
Currencies
Most currencies continued the trend of the last week and gained ground against the US dollar on Friday.
- The Euro rose from US$1.0822 to US$1.0842 and was near US$1.0839 at the US close.
- The Australian dollar rose from US$0.6735 to US$0.6753 and was near US$0.6749 at the US close.
- The Japanese yen firmed from JPY160.57 per US dollar to JPY160.40 and was near JPY161.74 at the US close.
Commodities
Global oil prices gave up early gains to finish the session lower on Friday despite storm activity in the Gulf of Mexico and a decline in US oil inventories supporting a fourth weekly gain.
- The Brent crude price fell by US$1.01 or 1.3% to US$86.54 a barrel.
- The US Nymex crude price decreased by US$0.90 or 1.1% to US$83.16 a barrel.
- Over the week, Brent Crude rose by 3%, while Nymex WTI gained nearly 2%.
- The gold futures price increased by US$28.17 or 1.2% to US$2,397.70 an ounce on Friday, trading at the highest levels in a month.
- Spot gold was trading near US$2,356 an ounce at the US close.
- Iron ore futures ended down by US$1.75 or 1.5% at US$111.31 a tonne on Friday.
What's next for Australian market?
As he does each week, Wealth Within chief analyst Dale Gillham runs his eye over what to expect from the local market in the coming weeks.
“July has kicked off with a bang! The All-Ordinaries index increased by just under 1% last week and I'm excited because this is the first time since mid-May that our market has consecutively hit new weekly highs. This upward trend suggests the market may finally be ready to break out of the current sideways move.
“Looking ahead, if the market continues its upward trajectory next week and surpasses 8,100 points, it would be reasonable to target the current all-time high of 8,168. On the other hand, if the market reverses and falls below 7,900 next week, it would signal the need for caution, resulting in the potential for a significant downward shift.
“Be prepared for either scenario. It is not uncommon for prices to spike up and down following prolonged sideways periods before eventually creating a directional trend.
“That said, I am still bullish. I recently mentioned that a rise in the materials sector would strengthen the market's upward momentum and we're seeing this unfold, with the materials sector rebounding strongly from the 17,000 level last week. Additionally, the energy sector has had a stellar week, posting one of its best one-week performances in recent history.
“So, with both energy and materials gaining traction and financials maintaining their strength, the conditions are ripe for future growth. Therefore, if you haven't positioned yourself yet, now is the opportune moment. The alignment of these key sectors suggests the potential for achieving your best returns this year."
What about small caps
The S&P/ASX Small Ordinaries finished Friday 0.15% higher to 2,987.50. It was 0.49% higher for the week.
A flat Friday looks to have extended into the start of the day today with a small amount of newsflow so far. You can read about the following and more throughout the day.