The ASX is expected to rise today, after a flat week last week. ASX 200 futures are trading 29 points higher, up 0.39% as of 8:20 am AEST.
The ASX200 finished 11 points (0.15%) higher at 7,314 last week, with the market affected by robust Australian jobs data that raised the risk of an RBA rate hike in August. Meanwhile, a soft GDP print in China heightened concerns the Chinese economy is stalling.
Looking at the sectors, Financials added 2.68% to close at its highest level in five months. Energy (+1.16%) and Health Care (1.14%) were also strong. On the flipside, Materials (2.45%) and Communications (-2.30%) dragged.
Key potential market-moving events this week include the release of Q2 CPI (Wednesday at 11.30 am) and Retail Sales (Friday at 11.30 am).
IG markets analyst Tony Sycamore says, “The interest rate market is 50% priced for an RBA rate hike in August. A hotter-than-expected CPI and robust retail sales this week would likely see those odds rise to ~80%. Keep an eye out for Rio Tinto’s HY 2023 earnings report, due out this Wednesday at 4.15 pm AEST.”
eToro analyst Josh Gilbert said, "The ASX200 eked out gains last week despite stronger-than-expected jobs data raising expectations the RBA will hike again in August.
"Beaten-down financials helped the index, gaining 2.7% for the week, whilst the materials sector struggled, with lithium stocks tumbling as China’s first futures for lithium sank on Friday.
"It’s a huge week for investors – it arguably doesn’t get much bigger than this. Locally, we see quarterly CPI and retail sales, two major deciding factors in the RBA’s next move.
"Three major central banks are also handing down rate decisions - the Federal Reserve, Bank of England and Bank of Japan. To cap all of that off, we’ve got around 40% of the S&P500 reporting earnings with four of the magnificent seven - Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Meta - all due this week.
What happened last week
Here’s what we saw (source Commsec):
US markets
Were mixed last week.
Trading was volatile as portfolio managers recalibrated their funds to account for an unusual Nasdaq 100 index rebalance taking effect on Monday. A large volume of index and stock options also expired on Friday.
American Express (NYSE:AXP) shares fell 3.9% after the credit card giant missed quarterly revenue estimates. Shares of SLB declined by 2.2% after the oilfield services firm missed quarterly revenue expectations due to moderating drilling activity in North America. Shares of Netflix (NASDAQ:NFLX) dipped by 2.3%, down for a second straight day after the video streaming company's quarterly results failed to impress. Transportation giant CSX (NASDAQ:CSX)'s shares dipped 3.7% on the back of underwhelming results. Nvidia and Meta Platforms shares lost 2.7% each.
The blue-chip Dow Jones index was lifted by gains of around 1.5% each in Procter & Gamble (NYSE:PG) and Chevron (NYSE:CVX). The Dow climbed 2.5 points or less than 0.1%, notching its 10th straight day of gains, the longest stretch since August 2017. The S&P 500 index rose less than 0.1% but the Nasdaq index fell by 30.5 points or 0.2%. For the week, the Dow rose 2.1%, the S&P 500 added 0.7% and the Nasdaq fell 0.6%.
European markets
Rose on Friday to end the week higher, as investors weighed the outlook for central bank interest rate hikes. Household goods shares added 1.4% to lead gains, while mining stocks shed 1.5%.
Shares of Swedish steelmaker SSAB slumped 13.8% after its operating profit halved in the second quarter. SAP shares slid 4.2% after the business software maker trimmed its full-year outlook for key cloud sales. Spanish voters headed to the polls on Sunday in a pivotal snap general election.
The continent-wide FTSEurofirst 300 index gained 0.4% on Friday and was up 0.9% for the week. The UK FTSE 100 index rose by 0.2% on Friday as data showed British retail sales grew by a faster-than-expected 0.7% in June (survey: +0.2%) despite high inflation. Shares of Hargreaves Lansdown (LON:HRGV) gained 1.9% after Jefferies upgraded the investment platform's rating to "buy" from "underperform". The index was 3.1% higher for the week.
Currencies were weaker against the US dollar in European and US trade. The Euro fell from US$1.1144 to US$1.1107 and was near US$1.1125 at the US close. The Aussie dollar slid from US67.86 cents to session lows near US67.20 cents at the US close. The Japanese yen eased from 140.10 yen per US dollar to near JPY141.93 and was near JPY141.80 at the US close.
Global oil prices rose nearly 2% on Friday to record a fourth consecutive weekly gain, buoyed by growing evidence of supply shortages in the coming months and rising tensions between Russia and Ukraine that could further hit supplies. The Brent crude price rose by US$1.43 or 1.8% to US$81.07 a barrel. And the US Nymex crude price added US$1.42 or 1.9% to US$77.07 a barrel. For the week, Brent crude gained 1.5% with the US Nymex up by 2.2%.
Base metal prices were mixed on Friday. The copper futures price fell by 0.4% on global demand concerns. But the aluminium futures price lifted by 0.2%. Over the week, copper dipped by 3% with aluminium down by 3.9% The gold futures price fell by US$4.30 or 0.2% to US$1,966.60 an ounce. Spot gold was trading near US$1,960 an ounce at the US close. Gold gained 0.1% over the week. Iron ore futures rose by US4 cents or less than 0.1% to US$112.47 a tonne. Iron ore lifted 0.1% for the week on worries over slowing Chinese demand.
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. Australian Quarterly CPI - A key piece of the puzzle
After inflation significantly declined in June to 5.6% from 6.8%, the RBA kept rates on hold in July. This week sees the release of the quarterly CPI, which gives a more accurate reading of inflation in Australia and therefore, clearer data for the RBA to plot its next move. The average consensus from Bloomberg is that the quarterly CPI reading will decline to 6.2% from 7% in Q1 but similarly to the monthly readings, the consensus is broad; ranging from a low of 5.8% to a high of 6.7%.
After the employment numbers showed further resilience in Australia’s labour market, anything but reading under consensus at 6.2% would likely solidify another rate rise from the Reserve Bank next month.
It would be surprising not to see at least one more hike from the RBA in its current cycle, with the threat of entrenched inflation still a clear worry for the board (something it noted in recent minutes) along with further evidence this week of a labour market that doesn’t look set to cool any time soon. There’s no doubt this impending data will be a market mover in the days ahead and may set up another volatile week on the ASX.
2. Rio Tinto (ASX:RIO) half-year results
China’s faltering economic recovery is impacting many sectors globally but miners such as Rio Tinto are feeling the full impact of weaker demand from the world’s largest iron ore importer.
A second-quarter production update showed its shipments fell by 1% from a year earlier, which could have an impact on its half-yearly results next week.
It wasn’t all bad news, however. Rio still expects full-year iron ore shipments at the upper end of its guidance, which could soften the blow for any weakness in its half-year results announcement next week, if its outlook is positive. Strength from Q1, when iron ore prices rebounded from 2022 lows, may help to offset its disappointing Q2 production.
The expectation is that EBITDA will jump by 17% this week from its H2 2022 results to $12.5 billion. Unfortunately for investors, that still may not be enough to stop the miner's typically impressive dividend from being trimmed.
3. A big week for big tech
Earnings weeks don’t get much bigger than this, with Microsoft, Alphabet, Amazon and Meta making up over 10% of the S&P500. After a poor start from Tesla (NASDAQ:TSLA) and Netflix this week, investors will be eagerly awaiting more upbeat numbers from some of the world’s biggest names to ensure the tech rally doesn’t fade. This week has taught us that anything but a near-perfect report will be punished, given tech’s colossal rally and higher valuations.
AI will most likely take centre stage once again, with Microsoft set to be front-and-centre as a leader in the AI space, thanks to its stake in ChatGPT creator OpenAI. However, Wall Street will want to see the tech giants start to convert this innovative technology into revenue.
Meta may be the standout, with earnings expected to grow year-over-year for the first time since Q3 2021. This, combined with the Q3 2023 launch of its new ‘Threads’ platform, which earned 100 million new users in five days, making it the fastest-growing app of all time, could boost Q3 guidance for Meta. This level of success bodes well for the company as it seeks to turn around public sentiment following its patchy foray into the VR app space with the ill-fated ‘Horizon Worlds’.
The bottom line is that results need to be solid – and outlooks will be just as important. Big Tech has the potential to keep outperforming, particularly with AI tailwinds, but it certainly won’t be without its challenges.
On the small cap front
The S&P ASX Small Ordinaries closed out Friday down 0.67%.
There has been a flurry of activity today, pointing to a potentially good start to the week.
Here’s a few to look out for.