The Week On Markets

The ASX 200 ended Friday flat and down hard for the week.

It was just all a bit of a Tarantinian bloody mess.

The benchmark ended lower by more than -2.5% last week, making it an August retreat of -3.5% so far. And there’s still 10 sessions left to make some more hay.

There’s some quality concern over a Chinese economy lacking quality and let’s not forget that deflation in Beijing probably means inflation is still in vogue in New York.

And it is. The shoot-first, no-prisoner philosophy is sending the right signals from a forever-hawkish Federal Reserve and the one-two China/Fed combo saw buyers on Wall Street and elsewhere flee for the bomb shelters.

On the ASX200, the heavy-hitting Financial & Materials Sectors were the lead troublemakers, ending  -3.6% and -4.3% lower respectively.

The roll call of shame: Sandfire Resources (ASX:SFR) –6.7%, BHP (ASX:BHP) -4.5%,  Fortescue Metals (FMG) -3.2%, and RIO Tinto (RIO) -3%.

A bad week for Westpac Banking Corp (WBC) -4%, as well.

Only the previously whacked Real Estate and Healthcare Sectors closed higher over the last five sessions with some upbeat earnings data from the likes of Goodman Group (GMG) +11% and Cochlear (COH) +11.9%, the large cap leading lights.

Both lithium and gold stocks copped a textbook “risk off” slap across the bottom last week too.

Among the bigger names: Pilbara Minerals (ASX:PLS) -10.9%, Evolution Mining (ASX:EVN) -10%, Mineral Resources (ASX:MIN) -7.1%, IGO (ASX:IGO) -5.9%, Northern Star (ASX:NST) -5.1%, and Newcrest Mining (ASX:NCM) -3.3%.


The Economic Week That Was

China. Property is still a problem.

Interest rates were cut and all eyes remain on the space where a massive and gung-ho stimulus package should be.

The Fed’s latest Minutes last week went on about the many risks around another rate hike.

Bitcoin is back being unreliable cubed. It crashed more than 11% on Thursday in the states, and then started bouncing hither and thither. I’m sure everything will be okay.

But perhaps not for the AUD over the short-term. It’s been doing a Tom Petty towards a US63c handle.

The Aussie has been smashed hard over the past couple days due to the news flow from China, where demand for Australian commodities are expected to dwindle as the economy slows dramatically.

The embattled Chinese property giant Evergrande filed for Chapter 15 bankruptcy protection in New York as the real estate crisis in China deepened again on Friday.

As Eddy Sunarto observed on Friday, most Asian stock markets have made it six straight sessions of losses on those concerns.

“A recent set of disappointing economic data out of China has not been encouraging for the region,” said IG’s typically understated market analyst Yeap Jun Rong.

The Week that Will be

Big earnings week at home as some of the big names drop their truth bombs thick and fast.

Ampol and IAG on Monday, mining giant BHP and Coles on Tuesday, and Domino’s Pizza, WiseTech and Woolworths on Wednesday.

Qantas, Ramsay Healthcare, Nine, Medibank, Whitehaven, Wesfarmers and Tabcorp round out a bust Thursday and Friday.

Qantas is the likely scene-stealer. Set to drop another record profit (circa $1.6bn) on Thursday, as everyone agrees the national carrier is ripping us all off, especially considering what happened during the pandemic.

This will be CEO Alan Joyce’s final Gala Set of Numbers in the Qantas Hangar near Mascot.

Travel remains in the sweet spot of strong demand and low supply. QAN is loving it. Revenue is set to rise to $19.6 billion, whilst underlying profit is expected at $2.45 billion. With record profits, investors should watch out for the return of its dividend – or at least an increase in its recent buyback scheme.

QAN investors are certainly due some cash. The flyer hasn’t dropped a dime in dividends following the circa $2.8bn of losses over the past few years – but it has flagged about $8bn in buying a new fleet.

Probs worth noting here that the local reporting season is not actually a shower of shame.

Last week saw some heavy support and fickle selling in both camps as the numbers dropped.

There were winners like Chicken giant Inghams (ASX:ING) +19%, GUD Holdings (ASX:GUD) +12.5%, Cochlear +12%, Goodman +11%, and even Magellan Financial did good, (ASX:MFG) +6.3%.

Then there were losses for some disappointing performers: Fletcher Building (ASX:FBU) -12%, Evolution Mining (ASX:EVN) -10%, Centuria Capital (ASX:CNI) -8.6%, and SEEK (ASX:SEK) -8.2%.

Q2 earnings are winding down in the States meantime, although fan fave NVIDIA (NVDA) is coming out after the close on Wednesday our time and what happens there is likely to have a big impact on Wall Street’s feelings.  Analysts are expecting big things. It’s NVDA’s ball to drop.

Three things, with Josh

We always ask Josh Gilbert, Friend of the Show and market analyst at eToro, to apply his relentless pursuit of returns by suggesting three key moments to look out for during the week ahead:

1. Reporting season’s biggest week

As Christian said, it’s the biggest week on the reporting season calendar next week, with over 40% of ASX200 listed companies reporting results. Some of the standout names include BHP, Qantas, Coles, Woolworths, Wesfarmers and Pilbara Minerals. It’s been a mixed reporting season, but Commonwealth Bank has been the standout name so far, with record profits.

Despite some positive results, the local market recorded its largest decline in 11 months this week as China’s economic troubles persist and investors digest higher-for-longer rates. Investors’ worries over China will be front and centre next week when BHP reports its full-year results.

Falling commodity prices will weigh on the results, with the market anticipating a significant decline of 40% in earnings and a 16% decline in revenue. Any signals from the mining giant of further weakness from China will weigh on shares.

2. Nvidia Earnings – The AI Boom

Nvidia, AKA the poster boy of AI, reports its Q2 earnings next week, in which investors will be hoping to see AI hype translate into revenue after promising a huge quarter. Earlier in the year, Nvidia shocked Wall Street and offered what was arguably one of the most bullish revenue forecasts markets had seen from a company of this magnitude. Nvidia forecasted Q2 revenue of US$11 billion, well ahead of analyst estimates of US$7.15 billion, with CEO Jensen Huang citing ‘unprecedented demand’ for its advanced chips required to train and power AI services.

In this AI boom, Nvidia is selling the picks and the shovels – and with so much demand for AI, everyone needs those work tools right now. The growth will come from its Data Centre revenue, which is set to see a 110% jump to US$7.86 billion through the sale of its flagship AI chip, the A100. However, even that number could be blown out of the water with growing demand from businesses such as Tesla, Alibaba, Tencent, Microsoft and even countries such as Saudi Arabia and the UAE. The good news for investors is that if Nvidia can translate AI interest into higher sales, this is just the beginning.

3. China woes weigh on the local market

China unexpectedly cut its one-year medium-term lending facility rate this week by 15 basis points to 2.5%. The rate is a key economic health indicator as it relates to loans to financial institutions, suggesting that policymakers are starting to see concerns in the state of the economy as data continues to weaken. The focus for next week will be if more monetary easing is on the cards – and if they can do so in a way that safeguards the stability of the Yuan. Warning signals flashed again this week, with fears mounting in the property sector as the slowdown continues to hurt developers.

That was evident on Friday as Evergrande filed for bankruptcy in the US, and concerns grew that other large developers would default. The region needs stimulus, and the data handed down recently more than supports that. It’s now a case of how far they are willing to let the economy spiral before acting. Unfortunately, Australia will feel the effect of the economic slowdown in the region.

China is the world’s largest manufacturer, the second largest economy, and the largest source of global consumption and commodities growth. Its growth weakness this year has been both a symptom of the world’s manufacturing and trade recession and caused by the caution of its own consumers. The materials sector was the worst-performing sector on the ASX this week, and that may be a sign of things to come if China’s economic woes continue.


The Australian Economic Calendar

Monday August 21 – Friday August 25

The week in front of us is nice and easy on the local macro front, with only the Judo Bank Australia PMI due. Both the headline measure and the underlying price gauges will be watched closely, if only because the number crunchers have little else to ponder.

It is a quiet week offshore too, thank you. PMI data is due in the UK and in the EU. Retail trade data will also be released in Canada.

All sources from Commsec, Trading Economics, S&P Global Research, AMP, Westpac


Judo Bank Australia PMI Composite Aug

The Everyone Else Economic Calendar

Monday August 21 – Friday August 25

All sources from Commsec, Trading Economics, S&P Global Research, AMP, Westpac

China 5-Year Loan Prime Rate
China 1-Year Loan Prime Rate
Eurozone ECB Current Account

United States Philadelphia Fed Non-Manufacturing Activity

United States Existing Home Sales MoM Jul
United States Richmond Fed Business Conditions Aug
United States Fedspeak (Goolsbee)
Japan Jibun Bank Japan PMI Composite Aug
Eurozone HCOB Eurozone Manufacturing PMI Aug
Eurozone HCOB Eurozone Services PMI Aug
United Kingdom S&P Global/CIPS UK Manufacturing PMI Aug
United Kingdom S&P Global/CIPS UK Services PMI Aug
Canada Retail Sales MoM Jun
United States S&P Global US Manufacturing PMI Aug
United States New Home Sales

United States Prelim. Benchmark Revision to Establishment Survey Data
Eurozone Consumer Confidence Aug
United States Initial Jobless Claims
United States Durable Goods Orders July

Japan Tokyo CPI Ex-Fresh Food, Energy YoY
United States Uni of Mich. Sentiment Aug
United States Kansas City Fed Services Activity Aug