ASX Futures are lower this morning, following last week’s trend which saw the benchmark ASX 200 fall 1.% — its first weekly loss in a month.
US stocks also finished the first week of August in negative territory. The downgrade to the United States credit rating didn’t help, nor did higher yields, and mixed earnings reports.
The downgrade affected all markets.
At a sector level locally, Consumer Discretionary (0.77%) was the only sector to finish higher last week. The interest rate-sensitive Utilities (-3.41%), Real Estate (-2.58%), and Financial (-1.72%) sectors all underperformed.
This week we’ll see consumer and business confidence surveys.
“The RBA's on-hold decision last week and softer inflation reading should see consumer sentiment extend its rebound towards 85 from 81.3 prior,” IG Markets analyst Tony Sycamore says.
On the earnings front, the market will be keeping a close eye on reports from CBA, AGL, REA Group, AMP, and Suncorp.
The market will also factor in Friday night’s US jobs report.
The economy added 187,000 jobs in July, below consensus expectations for a 200,000 rise and the prior month's numbers were revised lower from 209,000 to 185,000.
“Offsetting the signs of cooling evident in the numbers above, the unemployment rate unexpectedly fell to 3.5%, and average hourly earnings were unchanged at 4.4%, above consensus expectations of 4.2%,” Sycamore wrote.
“The key events in the US this week will be the inflation report for July and Q2 2023 earnings reports from companies, including Walt Disney (NYSE:DIS), Alibaba (NYSE:BABA), Roblox, Trade Desk, Rivian, Palantir Technologies (NYSE:PLTR) and UPS. There will also be interest to see how the rates market digests quarterly auctions of 10-year notes and 30-year bonds.
What happened last week
Here’s what we saw (source Commsec):
US markets
Fell on Thursday in choppy trade as investors weighed another rise in US Treasury yields amid signs of unexpected US economic strength and concern over a widening US budget deficit.
The busy earnings week carried on, with shares of chipmaker Qualcomm (NASDAQ:QCOM) down 8.2% on a fiscal third-quarter revenue miss and disappointing guidance.
PayPal (NASDAQ:PYPL) shares slumped 12.3% after posting in-line results and a decline in active accounts, while Expedia (NASDAQ:NASDAQ:EXPE) shares shed 16.4% as gross bookings fell short of expectations.
Shares of e-commerce company Etsy (NASDAQ:ETSY) slid 13.7% after reporting quarterly results. Shares of iPhone maker Apple (NASDAQ:AAPL) slipped 0.7%, while e-commerce giant Amazon.com (NASDAQ:AMZN) added 0.6% ahead of earnings results.
The Dow Jones index fell by 67 points or 0.2%. The S&P 500 index slid 0.3% and the Nasdaq index shed 14 points or 0.1%.
European markets
Fell for a third straight session on Thursday, the longest losing streak in more than five weeks, as technology stocks (-1.7%) were dragged down by Infineon Technologies' (-9.3%) outlook, while the Bank of England raised interest rates by 25 basis points. German exports increased by a sluggish 0.1% in June (survey: +0.3%).
The continent-wide FTSEurofirst 300 index fell by 0.6%. And in London, the UK FTSE 100 index slid 0.4%.
Currencies
Were stronger against the US dollar in European and US trade.
- The Euro rose from US$1.0911 to US$1.0960 and was near US$1.0945 at the US close.
- The Aussie dollar firmed from US65.14 cents to US65.68 cents and was near US65.50 cents at the US close.
- The Japanese yen lifted from 143.69 yen per US dollar to JPY142.07 and was near JPY142.55 at the US close.
Global oil prices gained over 2% on Thursday on supply concerns. Saudi Arabia said it will extend a voluntary oil output cut of one million barrels per day (bpd) for a third month to include September. Deputy Prime Minister Alexander Novak said Russia would cut oil exports by 300,000 bpd in September.
- The Brent crude price rose by US$1.94 or 2.3% to US$85.14 a barrel.
- The US Nymex crude price added US$2.06 or 2.6% to US$81.55 a barrel.
- The copper futures price rose by 1.3%.
- The aluminium futures price gained 0.8%.
- The gold futures price fell by US$6.20 or 0.3% to US$1,968.80 an ounce.
- Spot gold was trading near US$1,934 an ounce at the US close.
- Iron ore futures shed US$3.15 or 2.9% to US$104.26 a tonne amid fresh concerns about recovery prospects for China's struggling property sector, with sentiment further dampened by flooding in the country's top steelmaking province of Hebei.
JeToro market analyst Josh Gilbert shares his three things to watch in Australia in the coming days.
1. Reporting season - low expectations
The ASX200 has risen for the last two months, aided by the Reserve Bank of Australia seemingly winding down its tightening cycle as inflation falls and the expectation that the US can avoid a recession.
Reporting season will be the next catalyst to tallying three months of gains for the local market, but given the low expectations, there are downside risks. Looking ahead to next week, some of the more prominent names start to roll through, with ASX200 giant Commonwealth Bank reporting alongside Computershare, Newcrest Mining, AGL Energy (ASX:AGL) (ASX:AGK) and REA group, to name a few.
AGL Energy (ASX:AGK) will be a name to watch next week after revising its FY23 and FY24 guidance last month. Although the good news is already likely baked in, keep an eye out for an upside to EBITDA and especially on guidance for FY24.
For Commonwealth Bank, record earnings in its half-year results weren’t enough to stop shares from falling after warnings of a peak in net interest margins and slowing loan growth. That will be the focus this time around and investors will be hoping for some optimism, with shares down 8% in the last six months. The good news is that low expectations can sometimes leave room for upside surprises.
2. US CPI - Core the key to keeping the Fed on hold
US headline inflation has made significant progress in the last 12 months, falling from a peak of 8.5% to 3% in June, thanks to substantial declines in energy and food prices. This has led markets to believe that the Federal Reserve is done hiking rates, with current pricing showing just a 17.5% chance of a September hike.
Next week's CPI reading will be crucial in confirming this and further progress in core inflation will be the golden ticket investors are looking for to draw a line in the sand on the Fed’s hiking cycle.
Current Bloomberg estimates are for headline inflation to rise slightly to 3.2% from 3%, while core is declining to 4.7% for 4.8%. The Fed’s preferred measure of inflation has also shown further signs of receding, with June showing the smallest increase in more than two years.
There may be some worry about a pickup in headline inflation, given the 15% jump in oil prices over the last three months, but investors may be more focused on any declines in core inflation.
3. Chinese inflation - Deflation nation
Whilst most of the world is worried about high inflation, the world’s second-biggest economy is dealing with deflation fears.
China is expected to experience deflation next week, with a projected CPI reading of -0.4%. Manufacturing activity last month fell for the fourth straight month, and cautious local consumers, anticipating better deals due to falling prices, have slowed down spending, reinforcing deflationary pressures.
The reading next week may be what the region needs to heap pressure on Bejing to hand down further measures to reignite growth and boost the economy. Officials have hinted at additional support in recent weeks but with no material action. The worry for investors is that the effect of deflation in the world's second-largest economy has global repercussions.
Close to home, Australian miners could see some hardship if a period of deflation prolongs given it would drive Chinese demand for raw materials down, amongst other areas such as energy and even food. Unless more meaningful support is rolled out soon, fear is likely to grow amongst investors that the economy will continue to stagnate.
On the small cap front
The S&P ASX Small Ordinaries finished 0.032% higher on Friday, but was down 1.34% on the week.
It has already been a busy start on the small cap front, with several companies releasing strong announcements. You can read more about the following and more throughout the day.