The ASX is expected to rise today. Last week the S&P/ASX200 closed up just 4.80 points Friday to 7,256.70.
This morning ASX 200 futures are up to 7,274 ahead of the release of the Reserve Bank of Australia (RBA) May minutes on Tuesday, wage price data on Wednesday and jobless numbers on Thursday.
The ASX 200 is down 0.27% in the last four sessions: a position reflective of some of the tightest price action since September 2021.
However, those sessions saw the market bounce higher from intraday lows, with an inflection point on the horizon as the ASX 200 continues to form a tight range.
The question now is will it break out or falter?
Over in the US, the Dow closed Friday down 9 points at 33,301, the Nasdaq Composite slid 44 points, 0.4%, to 12,285 and the S&P 500 declined 7 points, 0.2%, to 4,124.
Investors digested softer-than-expected data on prices with both CPI and PPI numbers for April, positive news that was counterbalanced by more regional banking uncertainty. PacWest shares fell another 3% Friday after plunging about 20% Thursday.
Interesting fact: Apple Inc (NASDAQ:NASDAQ:AAPL)’s market cap is now more than the companies in the entire Russell 2000 index.
Here’s what we saw (source Commsec):
US markets
Mixed results for the US to finish the week. The markets finished lower on Friday as rising consumer inflation expectations dampened market expectations that a pause in the US Federal Reserve's interest rate hiking cycle was imminent.
Investors also kept an eye on developments in Washington as concern around debt ceiling negotiations persisted.
Bank stocks were weak with PacWest Bancorp dropping 3% and JPMorgan Chase (NYSE:JPM) sliding 1.4%. Tesla (NASDAQ:TSLA) shares lost 2.4% after its CEO Elon Musk announced the appointment of former NBCUniversal advertising chief Linda Yaccarino as Twitter chief executive.
Shares of Apple (-0.5%) and Amazon.com (NASDAQ:AMZN) (-1.7%) also dragged on major indexes. News Corp (NASDAQ:NWSA) (NASDAQ:NWS) shares rallied 8.5% after the media giant beat Wall Street estimates for third-quarter profit. The Dow Jones index fell by 9 points or less than 0.1%, the S&P 500 index lost 0.2% and the Nasdaq index shed 44 points or 0.4%. For the week, the Dow was down 1.1%, the S&P 500 fell by 0.3% and the Nasdaq rose by 0.4%.
European markets
Closed higher on Friday. Energy stocks (+1.5%), including Shell (LON:RDSa) (+0.9%) and BP (LON:BP) (+1.1%), were among the top gainers tracking rising oil prices. Data showed Spanish national consumer prices rose by 4.1% in the 12 months through April, while French inflation lifted by 6.9% - both in line with economists' estimates.
The continent-wide FTSEurofirst 300 index rose by 0.5% to be up 0.1% on the week. The UK economy, as measured by GDP, contracted by 0.3% in March (survey: flat). But the UK FTSE 100 index gained 0.3% and was 0.7% higher over the week.
Currencies
Were weaker against the US dollar in European and US trade.
The Euro fell from US$1.0933 to US$1.0846 and was near US$1.0865 at the US close.
The Aussie dollar slid from US67.04 cents to US66.36 cents and was near US66.50 cents at the US close.
The Japanese yen eased from 134.63 yen per US dollar to JPY135.75 and was near JPY135.60 at the US close.
Commodites
Global oil prices fell by around 1% on Friday as crude traders balanced supply fears against renewed economic concerns in both the US and China.
- The Brent crude price fell by US81 cents or 1.1% to US$74.17 a barrel.
- The US Nymex crude oil price shed US83 cents or 1.2% to US$70.04 a barrel. Both benchmarks settled about 1.5% lower week on week.
- Base metal prices rose on Friday. Copper futures gained 0.5% and aluminium futures finished up 1%. For the week, both copper and aluminium prices fell by around 4%.
- The gold futures price fell by US70 cents or less than 0.1% to US$2,019.80 an ounce. Spot gold was trading near US$2,011 an ounce at the US close. Over the week, gold fell by 0.2%, its first decline in three weeks.
- Iron ore futures rose by US36 cents or 0.3% to US$105.16 a tonne as traders mull what's next for China's uncertain and uneven economic recovery. For the week, iron ore gained 1.6%.
What's next for Australian stock market?
"Following a strong rise last Monday, the All Ordinaries Index drifted down over the next three days with the market unfolding in a very normal manner. It now appears as though the market has hit my target zone of around 7,330 points to find support and is now starting to rise again,” Wealth Within founder and chief analyst Dale Gillham says.
As the index closed higher for the week, Gillham expects we should see it trade higher over the next one to two months to above 7,800 points.
“We still need to remain patient, as we need to see the market move up in a sustained rise to above 7,600 points to confirm the bull market has returned. There is plenty of time to take advantage of opportunities that will unfold, so I caution investors to resist the temptation of investing because of FOMO because jumping in too early will increase your risk, which may result in losses.”
3 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. Xero fiscal year 2023 full year results
It’s been an impressive start to 2023 for Xero shareholders, with shares climbing by more than 30% as investors added tech back to their portfolios with the view of the RBA cutting rates by year-end. Despite this positive start to the year, Xero's share price remains below its peak of $155 during the 2020-2021 tech boom. The upcoming full-year results announcement holds significant importance for investors, as they hope it will help reignite the shares and push them towards previous highs.
There have been some big changes at Xero in the last year, with Sukhinder Singh Cassidy assuming the role of CEO. She has outlined a strategy to reduce operating costs and drive profitability, which will be the focal point of the upcoming full-year results, particularly after earnings missed expectations in its half-year results and its net loss widened. But, the market believes that the new CEO’s focus on profitability will pay off, expecting to report a net profit of $3 million for the full year-with revenues climbing by 28%.
A strong result will be needed to help sustain Xero’s excellent performance this year and reinforce investor confidence.
2. RBA meeting minutes
Following the RBA's unexpected rate hike in May, investors are eagerly awaiting the release of the RBA meeting minutes, hoping to gain a better understanding of the central bank’s decision. At the start of May, the Reserve Bank lifted Australia’s cash rate by another 25bps to 3.85% after the market had priced in a 90% chance of a pause, saying that inflation was too high.
The key concern for investors is whether the RBA will maintain its hawkish stance. If the board continues to signal the possibility of ‘further tightening to monetary policy’, it may lead to market weakness since the market is now pricing in rate cuts by October. However, any shift in language to hint that the end of the rate hikes could be in sight will be well received by the market.
But, the RBA will walk a fine line between outlining that previous tightening will begin to have an effect whilst still signalling that inflation is still too high. If the RBA gives an inch, the market will take a mile.
3. Tencent and Alibaba (NYSE:BABA) announce quarterly earnings
With Chinese tech equities having a tough few months, investors will be looking towards the Chinese reporting season for a boost that is well needed. Next week, Tencent (17th) and Alibaba (18th) will hand down quarterly earnings and expectations are low. Earnings estimates for the Hang Seng remain near record lows, Alibaba’s sales growth is set to come in under 3% and Tencent will still report single-digit growth, a stark contrast from the years of 20%+ revenue growth.
If US earnings can tell us anything, it's that low expectations can often lead to upside surprises, which would be positive for investor sentiment. Despite plenty of optimism from the re-opening in China, consumers are still reluctant to spend with worries over an uncertain economic outlook, and that hasn’t lived up to expectations that stocks priced in at the start of the year.
Although it may be another challenging quarter for Chinese tech, both Alibaba and Tencent's attractive valuations may present long-term opportunities for contrarian investors.