The ASX is set for another fall today.
The ASX200 finished 150 points (-2.13%) lower last week at 6,900, taking its lead from Wall Street and the potential for one final rate rise before the year ends.
The worst performing sectors were IT (-5.07%), Consumer Discretionary (-3.44%) and Health Care (-3.33%), while Energy (+2.67%) and Materials (-1.57%) were the sectors that outperformed.
“All eyes this week locally will turn to Wednesday's Q3 inflation report and a speech on Thursday from RBA Governor Michele Bullock at 9am," IG Markets analyst Tony Sycamore notes
"The market is looking for headline inflation to rise by 5.3% YoY in Q3, easing from 6% in Q2. The RBA's preferred measure of core inflation, the trimmed mean, is expected to print at 5% easing from 5.9% in Q2."
Looking to the US, Sycamore says, “In recent weeks, we have pointed to the shift in tone by Fed speakers who have noted tightening Financial Conditions coming from rising yields, which has offset the need for future rate hikes. We think the Fed is now on hold into year-end and likely beyond, but for this view to remain valid, a Q4 slowdown in economic data is needed.”
What happened last week?
Here's what we saw (source Commsec):
US markets
Ended sharply lower on Friday as investors worried about more US interest rate hikes and the Israel-Hamas conflict spreading. Shares of US regional banks tumbled as higher rates raised worries about the sector’s exposure to US Treasury securities that are falling in value.
The KBW regional banking index fell by 3.5%. Shares of Regions Financial (NYSE:RF) slid 12.4% after its profit missed analysts' average estimate. Solar stocks were also among the decliners. SolarEdge slumped 27.3% after it warned of significantly lower revenue in the fourth quarter. Credit card company American Express (NYSE:AXP) shed 5.4% even though its third-quarter profit beat expectations.
- The Dow Jones index fell by 287 points or 0.9%.
- The S&P 500 index slid 1.3%.
- The Nasdaq index shed 202 points or 1.5%.
- For the week, the Dow was down 1.6%, the S&P 500 fell 2.4% and the Nasdaq slid 3.2%.
European markets
Closed at their lowest level since January on Friday. Miners led declines, down 3.4%, weighed down by a 7.2% drop in Boliden after a bigger-than-expected dive in third-quarter profit hurt by high costs.
Travel and leisure stocks shed 2.3%, with InterContinental Hotels down 4.5% after quarterly net growth slowed. L'Oreal shares dipped 1.5% after a larger-than-expected hit to its travel retail business in Asia.
The continent-wide FTSEurofirst 300 index fell by 1.4%. The index slumped 3.5% for the week, the biggest loss in seven months.
In London, the UK FTSE 100 closed 1.3% lower, posting its worst weekly performance in two months, down 2.6%. British retail sales fell more than expected in September, dropping 0.9% in the month (survey: -0.4%).
Currencies
Were stronger against the US dollar in European and US trade.
- The Euro rose from US$1.0564 to US$1.0602 and was near US$1.0595 at the US close.
- The Aussie dollar lifted from US62.98 cents to US63.24 cents and was near US63.10 cents at the US close.
- The Japanese yen firmed from 150.01 yen per US dollar to JPY149.77 and was near JPY149.85 at the US close.
Commodities
Global oil prices fell on Friday after Hamas released two US hostages from Gaza, leading to hopes the Israeli-Palestinian crisis could de-escalate without engulfing the rest of the Middle East region and disrupting oil supplies.
- The Brent crude price fell by US22 cents or 0.2% to US$92.16 a barrel.
- The US Nymex crude price slid US62 cents or 0.7% to $88.75 a barrel.
- Oil posted a second weekly gain with Brent up 1.4% and the Nymex 1.2% higher.
Base metal prices slipped on Friday.
- The copper futures price slid 1.4%.
- The aluminium futures price shed 0.3%.
- For the week copper fell by 1.1% with aluminium 0.2% lower on persistent concerns about China's property market.
- The gold futures price rose by US$13.90 or 0.7% to US$1,994.40 an ounce on Friday, after hitting its highest level since May.
- Bullion rose by 2.7% over the week.
- Spot gold was trading near US$1,981 an ounce at the US close.
- On Friday, iron ore futures shed US39 cents or 0.3% to US$118.65 a tonne. Iron ore edged higher by 0.1% for the week, with gains capped by Chinese demand concerns.
What's next for Australian stock market?
Wealth Within chief analyst Dale Gillham runs the ruler over what to expect from the ASX in the coming days and weeks.
“While the stock market can be frustrating to deal with at times we can’t say that it’s ever boring. After finishing the week prior to last up 1.41% and looking good, you would think more of the same would occur. Well, as we have seen many times in the past three years, the market has a mind of its own and, once again, it reversed to trade down around 1% for the week.
“As I mentioned in my last report, I was expecting a slight fall over a couple of days before rising again, which it did on Tuesday and Wednesday. Then on Thursday, the market lost ground falling 1.28% and was back in the red.
"While this is concerning, it does highlight why I continue to say that we need to confirm a low before we buy because blindly jumping into a stock believing it has found support results in situations like we experienced last week.
“That said, all is not lost because while it is still possible we may see further falls below the 7,000-point support level, I still believe the move down has finished or is very close to being confirmed but only time will tell. So, while the market is looking better, we are not out of the woods just yet, which is why patience right now is still the best strategy.
“There are many good stocks showing strong signs of a nice bull run, which is why I continue to say that there will be plenty of time to profit when we can confirm the direction of the market.”
Three things to watch for the week ahead
eToro market analyst Josh Gilbert shares his three things to watch in Australia in the coming days.
1. US tech earnings (Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), Meta)
Next week is set to be one of the biggest weeks on the US quarterly earnings calendar with Microsoft, Alphabet (Google’s parent company) and Meta posting results.
A big focus for both Microsoft and Google will be artificial intelligence. Amid growing pressure on those in the AI field to turn presence into profit, investors will want to hear from management that AI hype can translate into growing revenue and earnings. Despite AI effectively being the trend of 2023, big tech is still struggling to convert market enthusiasm and broad adoption into viable revenue streams.
Meta will also be in the AI conversation with its launch of AI assistant glasses, so outlook there will be key as well. Of course, Meta’s foray into virtual and augmented reality with Horizon Worlds has largely fallen far short of expectations, so the pressure is on for Zuckerberg to produce a ‘must-have’ piece of hardware this financial year.
Time will tell whether AI is the key to reversing some of the negative consumer sentiment the company endured across 2023. Margin improvement has been key for Meta since cutting costs early, which has helped shares surge by 200% YTD, so further margin growth will be in the limelight.
Importantly, tech earnings need to deliver. Valuations are high and the expectation from investors will be that earnings are recovering and margins are improving for the tech world’s heaviest hitters.
2. RBA and inflation
It’ll be a big week for the RBA; not only do we hear from Governor Bullock but the Q3 CPI reading will likely guide the Governor on whether the RBA raises rates again before year’s end.
This week’s published minutes from October’s rates meeting were construed as hawkish by investors and the market is now pricing in one more hike in this cycle despite the Reserve Bank keeping rates on hold for four consecutive months.
Then, we have the crucial CPI figures next week. These will be imperative to market direction and the RBA’s next move. Q3’s CPI reading is forecast to be 5.1%, a drop from 6% last quarter.
There are some fears over the jump in fuel prices due to global turmoil impacting the RBA’s reading – a valid concern. To add to that concern, the bubbling geopolitical tensions overseas will only add to fears over stubborn oil prices. Regardless, anything under 5% could be the magic number for the RBA and would be a number that may justify keeping rates on hold in November.
3. US GDP
Retail sales rose again this week, showing that US consumers are still spending even while inflation bites down. The figures set the scene for the US GDP reading on Thursday, which is also likely to indicate further resilience in the US economy and that resilience has taken most investors by surprise this year.
Despite difficult conditions, the US economy is frankly still some distance from a recession, with the Q3 GDP reading set to see growth of 4.1%, the fastest quarterly growth since the end of 2021. A US recession would have global ramifications, so strong growth for the world's largest economy is good news.
Consumer spending continues to be driven by a tight labour market, with the economy creating 336,000 jobs in September. However, headwinds are mounting for consumers, many of whom rely on debt to fund purchases. Higher borrowing costs as the U.S. central bank tackles inflation have also pushed credit card delinquencies to an 11-year high. These conditions are serious enough to be a concern before the end of the year but aren’t likely to be reflected in next week’s data.
What about small caps?
The S&P ASX/Small Ordinaries finished 1.05% down on Friday and lost 2.15% for the week.
It has been slow-moving on the news front for small caps over the last couple of trading days. Here’s a few stories that have hit the board this morning that you can read more about throughout the day…