There is a likely fall coming for the ASX today. ASX 200 futures were trading 23 points lower, down -0.33% as of 8:20 am AEST.
A dip to start the week follows last week’s poor finish which saw the ASX200 finish 192 points (-2.62%) lower at 7,148, caught up in concerns over the Chinese economy, higher yields and a crumbling currency.
There is little data expected locally this week, so the market will, in part, rely on a heavy week of earnings reports to decide its direction.
“With little in the way of data on the Australian economic calendar this week, the main focus locally will be a continuation of the June half-reporting season, which sees 110 companies (45% of companies by market cap) set to report, including a2M, Ampol and BlueScope (Monday), Megaport, BHP (ASX:BHP), Coles and Woodside (Tuesday), Santos, Dominoes, Woolworths, Wisetech (Wednesday), Stockland (ASX:SGP), Tabcorp, Nine, Qantas and Whitehaven (Thursday) and Wesfarmers (ASX:WES), Pilbara and Mayne (Friday),” IG Markets analyst Tony Sycamore noted.
Overseas, the S&P 500 continues its decline. The index was down for the third consecutive week as it too digests higher bond yields, resilient economic data and renewed concerns over the Chinese economy.
Sycamore said, “Over the weekend, Chinese authorities met to discuss concerns over the Chinese economy. Reports suggest major bank lenders have been instructed to intensify credit expansion, explore new growth points for credit loans and adjust and optimise real estate credit policies.
"Whether there is enough in these headlines, followed by an expected rate cut today to boost sentiment, remains to be seen.
“This week the key events in the US will be the ISM manufacturing PMI, an earnings report from Nvidia and the annual Jackson Hole Economic Symposium titled 'Structural Shifts in the Global Economy'. The title leaves room to discuss topics including deglobalisation and the green transition, the neutral rate, artificial intelligence, larger fiscal deficits and remote work.
“Fed chair Powell and ECB president Lagarde are both expected to speak. The market is not expecting anything new to be delivered in the way of a new policy signal.
"Instead, market participants will pay close attention to policymakers' fresh views on the 'high degree' of uncertainty regarding the cumulative effects on the economy from past monetary policy tightening and the risk of overtightening vs insufficient tightening.”
The week that was
Here’s what we saw (source commsec):
US markets
Were mixed on Friday. Gains in energy (+0.9%) and defensive sectors offset falls in growth-focused technology. Consumer staples and utilities both rose 0.4%.
Megacap tech shares fell with Alphabet (NASDAQ:GOOGL) (Google) down 1.9%, Tesla (NASDAQ:TSLA) lower by 1.7%, Amazon (NASDAQ:AMZN) down by 0.6% and Microsoft (NASDAQ:MSFT) down by 0.1%. Cryptocurrency firms fell after bitcoin hit a two-month low. Chinese electric vehicle company, Xpeng (NYSE:XPEV), fell by 4.3% after a bigger-than-expected loss in the second quarter.
The Dow Jones index rose by 26 points or 0.1%. The S&P 500 index fell by less than 0.1% and the Nasdaq index lost 26 points 0.2%. Over the week the Dow fell by 2.2%, the S&P 500 lost 2.1% and the Nasdaq declined by 2.6%.
European markets
Fell to six-month lows on Friday on worries that interest rates could stay higher for longer as well as concerns on Chinese economic growth. Financials, mining and healthcare stocks led the declines. Chinese-exposed luxury goods stocks fell by 0.7-1.1%. The China Evergrande (HK:3333) Group filed for US bankruptcy protection.
The continent-wide FTSEurofirst 300 index fell by 0.6% with losses of over 2% for the week. In London, the UK FTSE 100 index declined by 0.7% on Friday, weighed down by data showing a bigger-than-expected 1.2% fall in retail sales volumes in July.
Currencies
Held in tight ranges against the US dollar in European and US trade.
- The Euro held between US$1.0845 and US$1.0880 and was near US$1.0865 at the US close.
- The Aussie dollar held between US63.80 cents and US64.17 cents and ended US trade near US64.00 cents at the US close.
- The Japanese yen held between 144.95 Japanese yen per US dollar and JPY145.76 and was near JPY145.37 at the US close.
Global oil prices rose on Friday.
- The Brent crude price rose by US68 cents or 0.8% to US$84.80 a barrel.
- The US Nymex crude price added US86 cents or 1.1% to US$81.25 a barrel.
Base metal prices were mixed on Friday.
- The copper futures price was up 0.4%.
- The aluminium futures price fell by 0.5%.
- Lead rose 0.8% with nickel down by 0.6%.
- The US dollar rose for the fifth straight week, weighing on mining and energy prices. A stronger greenback makes dollar-denominated currencies less attractive for buyers in Asia and Europe.
- The gold futures price rose by US$1.30 or 0.1% to US$1,916.50 an ounce.
- Spot gold was trading near US$1,888 an ounce at the US close. Over the week gold fell by US$30.10 or 1.5%.
- Iron ore futures rose by US46 cents or 0.4% to US$106.10 a tonne. Over the week iron ore rose by US73 cents or 0.7%.
eToro market analyst Josh Gilbert shares his three things to watch in Australia in the coming days.
1. Reporting season’s biggest week
It’s the biggest week on the reporting season calendar, with over 40% of ASX200 listed companies reporting results. Some of the standout names include BHP Group, Qantas Airways (ASX:ASX:QAN), Coles Group, Woolworths Group, Wesfarmers and Pilbara Minerals. It’s been a mixed reporting season, but Commonwealth Bank has been the standout name so far, with record profits.
Despite some positive results, the local market recorded its largest decline in 11 months last week as China’s economic troubles persist and investors digest higher-for-longer rates.
Investors’ worries over China will be front and centre this week when BHP reports its full-year results. Falling commodity prices will weigh on the results, with the market anticipating a significant decline of 40% in earnings and a 16% decline in revenue. Any signals from the mining giant of further weakness from China will weigh on shares.
On a more positive note, Qantas looks set to post record profits as travel remains in the sweet spot of strong demand and low supply. Revenue is set to rise to A$19.6 billion, whilst underlying profit is expected at A$2.45 billion. With record profits, investors should watch out for the return of its dividend – or at least an increase in its recent buyback scheme.
2. Nvidia earnings - the AI boom
Nvidia, AKA the poster boy of AI, reports its Q2 earnings, in which investors will be hoping to see AI hype translate into revenue after promising a huge quarter. Earlier in the year, Nvidia shocked Wall Street and offered what was arguably one of the most bullish revenue forecasts markets had seen from a company of this magnitude.
Nvidia forecasted Q2 revenue of US$11 billion, well ahead of analyst estimates of US$7.15 billion, with CEO Jensen Huang citing ‘unprecedented demand’ for its advanced chips required to train and power AI services.
In this AI boom, Nvidia is selling the picks and the shovels – and with so much demand for AI, everyone needs those work tools right now. The growth will come from its Data Centre revenue, which is set to see a 110% jump to US$7.86 billion through the sale of its flagship AI chip, the A100.
However, even that number could be blown out of the water with growing demand from businesses such as Tesla, Alibaba (NYSE:BABA), Tencent, Microsoft and even countries such as Saudi Arabia and the UAE. The good news for investors is that if Nvidia can translate AI interest into higher sales, this is just the beginning.
3. China woes weigh on local market
China unexpectedly cut its one-year medium-term lending facility rate last week by 15 basis points to 2.5%. The rate is a key economic health indicator as it relates to loans to financial institutions, suggesting that policymakers are starting to see concerns in the state of the economy as data continues to weaken.
The focus for this week will be if more monetary easing is on the cards – and if they can do so in a way that safeguards the stability of the Yuan. Warning signals flashed again last week, with fears mounting in the property sector as the slowdown continues to hurt developers.
That was evident on Friday as Evergrande filed for bankruptcy in the US, and concerns grew that other large developers would default. The region needs stimulus and the data handed down recently more than supports that.
It's now a case of how far they are willing to let the economy spiral before acting. Unfortunately, Australia will feel the effect of the economic slowdown in the region.
China is the world’s largest manufacturer, the second largest economy and the largest source of global consumption and commodities growth. Its growth weakness this year has been both a symptom of the world’s manufacturing and trade recession and caused by the caution of its own consumers.
The materials sector was the worst-performing sector on the ASX this week, and that may be a sign of things to come if China’s economic woes continue.
On the small cap front
The S&P/ASX Small Ordinaries (XSO) finished the week 0.33% lower. Over the past month it has lost 2.34%.
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