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What to expect from markets in the week ahead

Domestic results season is about to ramp up and investors like us will be focusing, in particular, on the outlook statements. You might recall there was…

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This article was originally published by Roger Montgomery

Domestic results season is about to ramp up and investors like us will be focusing, in particular, on the outlook statements. You might recall there was a lot of optimism at the time of the half yearly results in February. Back then, a combination of reopening, rebuilding and expectations of a continuation of accommodative monetary policy was met abruptly, in late February, with Russia’s invasion of Ukraine.

Since then, geopolitical conflicts have amplified, supply chain disruptions persist and accommodative monetary policy has reversed, leading to declines in consumer and business confidence as well as to analysts producing widely dispersed earnings estimates.

Domestically, macroeconomic conditions are fluctuating wildly with policy tightening, persistent and still-accelerating inflation, and falling house prices unlikely to make the task of forecasting earnings easy.

In such circumstances two things are probable; First, stock prices are prone to violent swings, and second, investors will hang on to outlook statements that are very likely to be inconclusive. Remember, the above macroeconomic uncertainties plant just as much ambiguity into the minds of CEOs as they do analysts.

I expect analysts will end the reporting season with a bias to lowering aggregate earnings outlooks. Aussie FY22 aggregate consensus earnings per share (EPS) growth estimates currently sit at +20.6 per cent and at +6.9 per cent for FY23.

In the US, the strong and very hawkish jobs number on Friday (another 528,000 jobs created in July) should have seen the S&P500 and Nasdaq down 2-3 per cent. The markets did initially slump before clawing their way back to a mostly flat finish. Nevertheless, it seems safe to assume a US recession is not a risk (irrespective of what official measures might say) and so the Fed will continue to raise rates there too. Conversely, institutional investors are all underweight the latest rally and remain fundamentally bearish, which means there are plenty of investors left to push stocks up if they become afraid they’re going to miss out on the rally.

Last week the Reserve Bank of Australia (RBA) lifted the overnight cash rate target by 50 basis points for a third time to 1.85 per cent. We remain far behind our Kiwi neighbours who have raised six times and now endure an overnight cash rate of 2.5 per cent. House prices falls in New Zealand are accelerating and in the June quarter fell 5.1 per cent – the fastest falls in decades.

As an aside, Australian property search volumes have already declined 44 per cent in NSW and 38 per cent nationwide. Auction clearance rates are hovering around 55 per cent nationwide and days on market statistics are lengthening.

Further rate rises are likely after the RBA updated its inflation forecast last week. The RBA’s forecast for inflation has been raised to peak at 7.75 per cent in the fourth quarter of the calendar year and to remain above four per cent throughout 2023.  Meanwhile the RBA revised down its forecast for 2022 GDP growth from 4.25 per cent to 3.25 per cent. Despite this, with the RBA’s “neutral” rate estimate for the overnight cash rate at a minimum of 2.5 per cent, and with wages risks firmly to the upside, it is reasonable to expect another rate hike next month. Keep in mind of course, the RBA opened the door to smaller (or larger) than 50 basis point hikes when it said it is not on a “pre-set” path

Here’s a selection of who’s reporting earnings this week:

Monday August 8:

(AZJ) Aurizon Holdings,

(SUN) Suncorp Group

Tuesday August 9:

(MP1) Megaport,

(NWS) News Corp,

(REA) REA Group,

(BBN) Baby Bunting

Wednesday August 10:

(ACL) Australian Clinical Labs,

(CNI) Centuria Capital,

(MIN) Mineral Resources,

(CTD) Corporate Travel Mgmnt,

(CBA) Commonwealth Bank of Australia

Thursday August 11:

(AMP) AMP Limited,

(MGR) Mirvac Group,

(QBE) QBE Insurance Group,

(RMD) ResMed,

(TLS) Telstra Corporation

Friday August 12:

(IAG) IAG Insurance Australia Group,

(BLX) Beacon Lighting,

(IPH) IPH Limited,

(PWH) PWR Holdings

View our full reporting calendar here. 



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