ASX 200 futures are trading 30 points lower, down -0.41% as of 8:15 am AEST.
The ASX200 finished 14 points (0.20%) higher last week at 7,340. It was quiet at an index level last week but reporting season made up for what could have been a slow news week.
The best-performing sectors last week were Consumer Discretionary (+1.96%), Telcos (1.06%), Energy (0.76%) and Financials (+0.72%). On the flipside, the IT (-1.62%), Consumer Staples (-0.82%), Utilities (-0.59%) and Health Care (-0.56%) had bad weeks.
This week, local investors will have a keen eye on the minutes from the RBA’s August meeting, June quarter wages data and the jobs report for July.
“They are likely to reiterate the bank’s softened tightening bias with more balanced risks around the inflation outlook,” AMP chief economist Shane Oliver said.
Investors can also expect to see earnings reports from companies that amount to 30% of the AS200's market cap, including JB Hi-Fi, Lendlease, CSL, Treasury Wine Estates, Cochlear, Endeavour Group, Transurban, Telstra Amcor, Seven Group Holdings, Super Retail Group, Allkem and Magellan.
Looking overseas, it was a mixed finish to the week on Wall St.
IG Markets analyst Tony Sycamore said, “Cooler-than-expected inflation was undone by hawkish Fed speak, resilient data, rising energy prices, higher yields and a stronger US dollar.
“On Friday night, core producer prices in the US rose by 0.3%, rebounding from a -0.1% fall last month for its sharpest increase since November 2022. The University of Michigan consumer sentiment eased to 71.2 from 71.6 in August but beat forecasts of 71.
"In the words of Fed Member Mary Daly, we continue to think the Fed still has 'more work to do'. The rates market is gradually moving to this view, with the market pricing in a 36% chance of a 25bp rate hike in November.”
In China, Beijing will release economic figures tomorrow for the latest reading of its slowing activity. The numbers will incorporate disappointing manufacturing and trade balance figures.
“Markets are waiting for more concrete details of stimulus to emerge and more policies to support the housing sector,” NAB Markets Unit economist Taylor Nugent said.
China is Australia’s biggest customer for commodities and a poor outcome, could see the AUD plummet further than the US64.84 cents it currently sits at after its fourth consecutive decline.
What happened last week
Here’s what we saw (source Commsec):
US markets
Were mixed on Friday as stronger-than-expected US producer prices data pushed US Treasury yields higher and pressured interest rate-sensitive megacap growth stocks.
Tesla (NASDAQ:TSLA), Meta Platforms and Microsoft (NASDAQ:MSFT) closed down between 0.6% and 1.3%. A 3.6% fall in Nvidia shares weighed on the PHLX semiconductor index, which was 2.3% lower. News Corp (NASDAQ:NWSA) (NASDAQ:NWS) shares rose 4.6% after the media conglomerate beat quarterly profit estimates.
The Dow Jones index rose by 105 points or 0.3%, helped by advances of 2.1% and 1.8% in Chevron (NYSE:CVX) and Merck, respectively. But the S&P 500 index dipped 0.1% and the Nasdaq index shed 76 points or 0.6%. For the week, the Dow rose 0.6%. But the S&P 500 fell 0.3% and the Nasdaq slid 1.9%, both lower for a second straight week.
European markets
Fell on Friday as concerns that global interest rates could stay elevated for longer took centre stage. Rate-sensitive technology and real estate stocks were both down 2.1%.
The continent-wide FTSEurofirst 300 index fell by 1.1% and rose just 0.1% for the week. In London, the UK FTSE 100 index slid 1.2% on Friday after data showing the UK economy grew 0.2% in the June quarter (survey: flat) fanned fears of more interest rate hikes from the Bank of England. The UK FTSE 100 index ended 0.5% lower for the week.
Currencies
Were weaker against the US dollar in European and US trade.
- The Euro fell from US$1.1003 to US$1.0941 and was near US$1.0945 at the US close.
- The Aussie dollar dipped from US65.31 cents to US64.84 cents and was near US65.00 cents at the US close.
- The Japanese yen eased from 144.42 yen per US dollar to JPY144.99 and was near JPY144.95 at the US close.
Global oil prices rose on Friday after the International Energy Agency (IEA) forecast record global demand and tightening supplies, propelling prices to the seventh straight week of gains. The IEA estimated that global oil demand hit a record 103 million barrels per day in June.
- The Brent crude price rose by US41 cents or 0.5% to US$86.81 a barrel.
- The US Nymex crude price added US37 cents or 0.4% to US$83.19 a barrel. On a weekly basis, both benchmarks rose about 0.5%.
- The copper futures price fell by 1% after Chinese new bank loans tumbled to a 14-year low in July, increasing deflation pressures.
- The aluminium futures price slid 1.9%.
- Copper shed 3.4% with aluminium down 2.6% for the week.
- The gold futures price fell by US$2.30 or 0.1% to US$1,946.60 an ounce on Friday.
- Spot gold was trading near US$1,913 an ounce at the US close. Bullion was down 1.5% for the week.
- Iron ore futures rose by US77 cents or 0.7% to US$105.37 a tonne on Friday as some Chinese steel mills recommenced operations after the summer lull, lifting demand and supporting prices.
- Iron ore edged higher by 0.2% over the week.
eToro market analyst Josh Gilbert shares his three things to watch in Australia in the coming days.
1. Reporting season moves into full swing
It’s a big week on the reporting season calendar, with CSL, Telstra, JB-Hi Fi and Transurban, to name just a few, all releasing full-year results.
The ASX200 has taken results well so far, gaining 0.2% last week despite US equities moving into reverse after their huge gains this year. CSL will be the focal point of the week but consumer discretionary stocks such as JB Hi-Fi will be under the spotlight.
Retail sales have contracted for three straight months as consumption continues to fall under the RBA’s most aggressive tightening cycle for decades. Looking to CSL, the healthcare giant has already revised its guidance for FY23, citing currency headwinds, and downgraded its FY24 forecast.
The company has felt the full force of that downgrade, with shares tumbling by 12% in the last three months to AU$265, making the healthcare sector the worst-performing ASX200 sector in that time.
Investors will be hoping for an upside surprise to CSL’s results rather than any further weakness in earnings, margins or its FY24 forecast. The silver lining is that often, low expectations can lead to upside surprises.
2. Australian unemployment and wages
Reporting season has taken investors' minds off macro for a short period, but this week sees another reading on Australian employment, which is a crucial data point for Philip Lowe and the Reserve Bank.
The unemployment rate is set to stay near decade lows at 3.5%, with 3.4% being the all-time low recorded in October last year. The worry for the RBA is that the labour market in Australia remains tight, and the new jobs being added are full-time positions, meaning higher wages.
This week also sees the quarterly reading of the Wage Price Index, which has remained on an upward trajectory since the pandemic low and is set to rise again next week to 3.8%. With a tight labour market and wages that don’t seem to be slowing, inflation may begin to prove stickier than the RBA is anticipating, especially in services.
Investors will be looking to see unemployment picking up and wages cooling next week, as this will be a key element in ensuring that we have seen the last hike from the Reserve Bank.
3. Tencent Q2 earnings
Tencent is set to report Q2 earnings and with deflation confirmed in China this week, the outlook for Chinese equities remains sour. The silver lining is that the deflation reading, alongside weaker-than-expected imports and exports, may prompt Chinese officials to act.
More meaningful support from China in the coming days and weeks would be met with market optimism. The economic struggles will remain a drag on sales growth in the second half of the year for Tencent, but Q2 earnings may offer some short-term positivity driven by a rebound in gaming and advertising revenue.
The good news long term is that the crackdown from regulators in the region on Chinese tech is seemingly over, and those regulators seem more accommodating towards gaming after years of tough treatment towards developers shaved significant value off the sector.
Although Baidu (NASDAQ:BIDU) appears to have stolen the show in the AI race over in China, Tencent will likely provide updates on its AI plays, which should spark investor interest. But, if China’s economy continues to weaken, technology companies like Tencent will find it tough to see decent growth.
On the small cap front
The ASX S&P Small Ordinaries finished 0.56% higher last week and it has been a sprightly start on the news front this morning. You can read about the following and more in further detail during the day.