Proactive Investors
Published Sep 04, 2023 09:25
The morning catch up: Strong start to the week expected for ASX ahead of latest RBA decision and GDP growth rate
The ASX is set to rise today, with ASX 200 futures trading 31 points higher, up 0.42%, as of 8:20 am AEST. The S&P/ASX 200 closed 27 points lower, down -0.37%, on Friday.
Defensives such as Healthcare, Utilities and Real Estate led to the downside on Friday.
Australian investors will be looking at Tuesday’s RBA Board meeting, followed by Q2 GDP on Wednesday.
“Last week's softer-than-expected inflation number, combined with an increase in the unemployment rate to 3.7%, tame wage growth and an expected slowing in GDP growth, will all but certainly see the RBA keep rates on hold for a third consecutive month in September at 4.10%,” IG markets analyst Tony Sycamore said.
The solid start expected this week follows a mostly higher finish for the week for major US benchmarks, albeit they were well below session highs.
Notably, energy trade made a comeback amid a broad-based rally across oil, uranium and coal stocks.
It is the Labor Day holiday in the US on Monday, so it could be a quiet start to the week.
Sycamore said of Wall Street’s solid performance, “Cooling in the labour market and easing inflation supported US equity markets last week ahead of the Labor Day long weekend.
“August's labour market report showed the US economy created over 187,000 jobs, exceeding consensus expectations, looking for a rise of over 170,000.
"However, a combination of downward revisions to the prior two months, the unemployment rate rising to 3.8% (highest since Feb 22), and the softer-than-expected JOLTS job openings and ADP (NASDAQ:ADP) employment report earlier in the week confirm the Fed will stay on hold in September.”
What happened last week
Here’s what we saw (source Commsec)
US markets
Were mixed on Friday. The rally in stocks faded as bond yields climbed after a strong factory report offset optimism with jobs data signalling the US Federal Reserve is close to ending its tightening cycle.
Shares of Lululemon gained 6% after the yoga wear maker lifted its annual profit and revenue forcasts. Dell surged 21.3% after exceeding analysts’ second-quarter expectations. Shares of Tesla (NASDAQ:TSLA) dropped 5.1% after the electric vehicle maker cut prices for some Model S and Model X vehicles in China.
Drugstore chain Walgreens slid 7.4% after CEO Rosalind Brewer stepped down. Shares of streaming firms fell due to dispute between Disney (-2.4%) and Charter Communications (NASDAQ:CHTR) (-3.6%).
The Dow Jones index rose by 116 points or 0.3% and the S&P 500 index gained 0.2%. But the Nasdaq index fell by 3 points or 0.02%. For the week, the S&P 500 rose 2.5%, the Dow added 1.4% and the Nasdaq lifted 3.3%.
European markets
Were mixed on Friday. Energy stocks rose by 1.9% after Morgan Stanley (NYSE:NYSE:MS) double upgraded the sector and crude oil prices rose. But autos lagged, down 2.6%, after UBS cut ratings on Volkswagen (ETR:VOWG_p) and Renault (EPA:RENA), which dropped 5% and 6.3%, respectively. HCOB's eurozone manufacturing Purchasing Managers' Index (PMI) rose to 43.5 in August from July's 42.7 (survey: 43.7).
Currencies
Were mostly weaker against the US dollar in European and US trade.
Commodities
Global oil prices rose to seven-month highs on Friday, buoyed by expectations of tightening supplies by OPEC and its allies (OPEC+). Saudi Arabia is widely expected to extend a voluntary 1 million barrel per day oil production cut into October.
Base metal prices rose on Friday.
What's next for Australian stock market?
Wealth Within chief analyst Dale Gillham gives his thoughts on what investors should be looking out for.
“After falling for 22 trading days and nearly 5% in price, last week the All Ordinaries Index has seen a big turnaround, as it is up nearly 3% since the previous Friday's low.
"I mentioned previously that the downward momentum in our market was around 50% slower than the prior move up, which I indicated was positive given the bears were not really committed to the down move. The story has now flipped as the price rose for three days last week and recovered what it took to fall over the prior seven days.
“I also mentioned that it was possible that last week could be a turning point and that if it turned, it would rise consistently over the coming month or so.
"While I am not getting too excited just yet, the signs are good. That said, it’s still best to have the mindset that the market could fall because as we have seen so many times in the past three years, just when think the market is bullish it does the opposite. Therefore, I strongly recommend you have a stop loss on every stock you own.”
Three things to watch for the week ahead
eToro market analyst Farhan Badami shares his three things to watch in Australia in the coming days.
1. RBA interest rate announcement
In his final board meeting on Tuesday, Philip Lowe is expected to keep rates on hold, with the RBA rate indicator charting an 86% chance that rates will remain unchanged and a 14% chance that they could decrease to 3.85%.
This week, the ASX has closed with gains on four consecutive days, with Friday being the first day this week that it’s set to fall. We are not out of the woods yet, but RBA’s pursuit of a soft landing still appears to be on track.
While homeowners across the country are praying for relief before Christmas time, banks are remaining pessimistic about any relief before this time next year. With Michele Bullock set to take the helm this month, economists are tipping her first crack at easing rates may be a while away in the third quarter of 2024.
2. Australia GDP growth rate
This coming Wednesday will see the quarterly release of Australia’s Gross Domestic Product (GDP) rate by the ABS.
Markets will be hoping for stronger results than what was delivered in June, which saw the GDP rise by just 0.2%, the weakest result since the COVID-19 Delta lock-down contraction in September 2021.
The bottom line is that while prices are easing in some sectors, consumers are still struggling with climbing costs overall and are opting out of discretionary spends, which we saw impact homewares and home entertainment retailers in August’s ASX earnings announcements.
Economists broadly will be expecting more growth than a 0.2% shift in tides, but I think very few will be banking on anything above a 0.6% improvement.
3. China & Aus trade balances
Thursday is the tentative date that both China and Australia’s monthly trade balances are reported. Given China is our biggest trading partner, the data insights will be a valuable forecasting tool for 2024’s economic outlook.
Assistant Minister for Trade Tim Ayres expressed this week that he wants trade ties with China to be normalised on the prerequisite that Shanghai remove the remaining trade restrictions that were introduced in early 2021, which affected significant exports such as red wine, red meat and timber.
China’s economy is still struggling to make a post-pandemic recovery, with property and construction industries in a slump, and while Australia is only the nation’s sixth largest trading partner, restoring the relationship between both countries could provide a significant net benefit.
The small cap market
The S&P/ASX Small Ordinaries (XSO) finished down 0.074% last week.
There has already been solid news flow this morning and you can read about the following and more throughout the day.
Read more on Proactive Investors AU
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