The ASX is expected to finish July on a high today. ASX 200 futures are trading 19 points higher, up 0.25% as of 8:20 am AEST.
It was a solid performance from the ASX200 last week as it closed 89 points (1.23%) higher at 7,403. The rally followed a cooler-than-expected inflation report in Australia and dovish rate hikes from the Fed and the ECB.
So far this month, the ASX200 is up 2.78%.
July’s trend, including last week’s trading, comes after major US benchmarks rallied despite Thursday’s pullback and the Bank of Japan adopted a more flexible stance on yield targets.
IG Markets Tony Sycamore noted that last week was a big test for markets that included rate hikes from the Fed and the ECB, along with a surprise tweak to the BoJ’s YCC.
July was certainly a more positive month with the Nasdaq up 3.77% for the month, the Dow Jones is +3.06% and the S&P500 is up +2.96%.
“The rally in July was a function of stronger-than-expected growth data, better-than-expected earnings and lower inflation,” Sycamore said. “The trend lower in inflation was reinforced on Friday, as the Core PCE Price Index eased to 4.1% in June vs 4.2% expected, prompting calls of Goldilocks.
“Before becoming too transfixed in the Goldilocks narrative, this month, the price of crude oil has surged 14.2% to above $80 per barrel. With the cost of petrol/gas at the bowser already climbing, we do wonder how long until inflation fears return and for how long the current state of economic nirvana can last.”
What happened last week
Here’s what we saw (source Commsec):
US markets
Rose on Friday as a measure of inflation closely watched by the US central bank came in at its lowest level in nearly two years. Americans also grew more optimistic about the US economic outlook.
On the earnings front, Intel (NASDAQ:INTC)'s return to profitability and bullish sales forecast pointed to an improving PC market, sending the chipmaker's shares up 6.6%. Meta Platforms and Tesla (NASDAQ:TSLA) shares each rose more than 4%. Shares of consumer goods company Procter & Gamble (NYSE:PG) gained 2.8% after it beat analysts' estimates for quarterly sales.
Ford Motor (NYSE:F) shares slid 3.4% as it expects to see losses from electric vehicles hit US$4.5 billion this year. Exxon Mobil (NYSE:XOM) shares retreated 1.2% after the oil supermajor fell short of analysts' expectations with a third straight drop in profit.
At the close of trade, the Dow Jones index rose by 176.5 points or 0.5%. The S&P 500 index gained 1% and the Nasdaq index added 266.5 points or 1.9%. For the week, the Nasdaq climbed 2%, the S&P rose 1% and the Dow gained 0.7%
European markets
Were mixed on Friday. Chemicals stocks lifted 1.1%, driven higher by shares of BASF (+3.1%) on expectations for a tentative recovery in its chemical output. The result helped push German shares to a record high, up 0.4%, which was further supported by an easing in inflation. German annual consumer prices eased from 6.8% in June to 6.5% in July (survey: 6.6%).
The continent-wide FTSEurofirst 300 index fell by 0.2% but was up 1.1% for the week, its longest winning streak since April. In London, the UK FTSE 100 index ended flat on Friday, but posted its third straight weekly gain, lifting 0.4%.
Currencies
Were mixed against the US dollar in European and US trade.
- The Euro rose from US$1.0945 to US$1.1046 and was near US$1.1015 at the US close.
- The Aussie dollar lifted from US66.22 cents to US66.78 cents and was near US66.50 cents at the US close.
- The Japanese yen dipped from 138.83 yen per US dollar to JPY141.18 and was near JPY141.15 at the US close after the Bank of Japan tweaked its yield curve control policy.
Commodities
Global oil prices rose on Friday, notching a fifth straight week of gains, as investors were optimistic that healthy demand and supply cuts will keep prices buoyant.
- The Brent crude price rose by US75 cents or 0.9% to US$84.99 a barrel.
- The US Nymex crude price added US49 cents or 0.6% to US$80.58 a barrel.
- Both oil benchmarks gained nearly 5% for the week.
Base metal prices rose on Friday after the greenback softened as US inflation cooled.
- The copper futures price gained 1.3% and the aluminium futures price added 1%. Copper was up 3% on a weekly basis with aluminium 1.4% higher.
- The gold futures price rose by US$14.70 or 0.8% to US$1,960.40 an ounce.
- Spot gold was trading near US$1,959 an ounce at the US close. Gold dipped by 0.3% for the week.
- Iron ore futures shed US21 cents or 0.2% to US$112.69 a tonne but were up 0.2% over the week.
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. RBA rate decision
When the RBA meets tomorrow, they will have a tough debate on whether to hike or keep rates on hold. Q2 CPI released last week showed that inflation is declining in Australia thanks in part to Philip Lowe and the Reserve Bank’s 12 hikes in 15 months.
There is still a long way to go to bring inflation, which still sits at 6%, back to a target of 2–3% – and Australia’s labour market continues to show resilience, which means rates may stay higher for longer.
Looking ahead to the decision, the market believes there is only a 13% chance of a hike after the lower-than-expected inflation data, but we’ve seen this year that the board can surprise markets.
Although another pause seems to be on the cards, markets still believe that the Reserve Bank has another hike in the tank, pricing in a 75% chance they will hike before year-end.
The good news for investors is a pause from the RBA could be the catalyst to propel the ASX200 within touching distance of record highs and may readjust market pricing to see 4.1% as the peak.
2. Reporting season just around the corner
The Australian reporting season is underway, with Rio Tinto’s half-year results, and next week sees two more names reporting in Credit Corp Group and BWP Trust. Investors will soon gain insight into the Australian companies that are effectively manoeuvring through an undoubtedly difficult macroeconomic landscape.
Some companies, like CSL, have already forewarned investors about underwhelming full-year results by revising profit guidance. Given the challenging environment mentioned, investors' focus should be on cost control measures and then on margins given that over the past year, inflation has been at a 30-year high.
Unfortunately for dividend-loving investors, some corporates may decide to trim dividends in a bid to preserve balance sheets. Finally, watch for FY24 outlooks, which will likely hold the key to who comes out of reporting season as a winner.
3. Apple earnings
Apple shares (NASDAQ:AAPL) have had a strong start to 2023, gaining almost 50% year-to-date and tipping over the historic $3 trillion mark in June. With Microsoft (NASDAQ:MSFT) and Tesla showing recently anything but perfect results will be punished, its FQ3 earnings will have no margin for error.
China’s faltering economic recovery will be a worry for investors, particularly with consumers in the region not spending at the levels Apple is used to. The bright spot is likely to be services revenue, one of the only segments set to post revenue growth for the quarter, thanks to the success of the App Store, ApplePay and AppleTV, to name a few.
This segment of the business is a powerhouse and is set to be a major contributor to Apple’s growth over the next decade, making it an area of the business investors should watch. Further updates regarding the release of the iPhone15 should lift investor optimism as the upgrade cycle swings into full force. Market consensus is for earnings of $1.20 on revenue of $81.5 billion. If revenue consensus is met, it would signify the third quarter of declining revenue for Apple.
On the small cap front
The S&P ASX Small Ordinaries finished Friday 1.13% down but was 0.50% for the week.
Looking at what we’ll be covering in more detail today: