The ASX200 closed with its biggest weekly gain of the year last week, up 3.7%, with investors seeing the end in sight for central bank tightening. The market took the news of Michele Bullock’s appointment as RBA Governor well with the hope that she may have a more dovish stance than Philip Lowe when she takes the helm in September.
In the US on Friday, US banks handed down earnings in what was mixed results. JPMorgan and Wells Fargo were the standout performers, with beats on both the top and bottom lines. However, this was overshadowed by increased loan loss provisions and weak investment banking performance, which also saw Citigroup falter, with shares falling 4.1%.
3 things that happened last week:
- Michele Bullock replaces Philip Lowe as RBA Governor
Last week, the RBA made some significant adjustments with a change in Governor and a shift in its board meeting progress. Michele Bullock, who has been at the Reserve Bank of Australia for close to 40 years, is taking the reigns as Australia’s first-ever female Central Bank Governor. The board will now only meet eight times a year rather than eleven, and the meetings would be longer, with a press conference after each meeting. The changing of the guard comes at a time when many have called for an overhaul at the RBA, and Treasurer Jim Chalmers warns of a substantial economic slowdown.
- US Headline Inflation eases to 3%, lowers rate hike expectations
US Inflation eased last week for the 12th straight month, putting the Federal Reserve on track for a soft landing. Headline inflation eased to an impressive 3% but more importantly, core inflation slowed to 4.8%. Markets welcomed the number, with the S&P500 closing at its highest level since April 2022, whilst the Nasdaq 100 jumped 3% last week. This isn’t the end of the Fed’s battle on inflation but it’s a significant step in the right direction. It’s likely the Federal Reserve will still have another hike in the tank at the end of the month but this data sets up a scenario where it could be the last of its current cycle. Federal Reserve officials now go into a blackout period before the board meets for its rate decision next week.
For more on US inflation and Earnings Season, check out the latest Market Bites Podcast:
- A winner and loser last week from the S&P/ASX200
Megaport took the crown of the best-performing stock, climbing by more than 40% last week. The huge week comes after the company raised its earnings guidance following a strong performance in 2023.
There were just twelve stocks that finished in the red last week, but Medibank Private (MPL) suffered the most, falling by 4%. The company is still dealing with the fallout of its major cyber breach and continues to see analyst downgrades.
3 things to watch for the week ahead:
1. AU Employment Numbers – A key piece of the puzzle
Despite a red-hot labour market, the Reserve Bank kept rates on hold earlier this month, citing time to assess incoming data after a significant increase in the cash rate in such a short period. This week holds a key piece of the RBA’s puzzle: the unemployment rate and employment growth figures, set to be handed down on Wednesday. Although the RBA wants to see unemployment rise, they don’t want to see it spike and Philip Lowe has mentioned several times that the board would rather not be too aggressive and preserve gains in the labour market. The unemployment rate should be set to rise in the second half of 2023 as labour supply jumps and growth slows, but it has so far remained resilient, with stronger-than-expected employment last month pushing the unemployment rate lower. This week, the RBA will be hoping for a softer employment number to vindicate their decision to keep rates on hold. A slowing of the labour market would be welcomed by investors, with that data likely to reaffirm that the RBA may be done with raising rates after August.
2. Tesla and Netflix Q2 Earnings
Earnings season unofficially kicked off in the US last week and this week sees two tech giants hand down earnings in Netflix (NFLX) and Tesla (TSLA). Both companies will report on Thursday morning after the US market close. Following a solid Q1 for the streaming giant and an almost 50% gain year-to-date, it looks as if its recent struggles are well and truly in the rearview mirror. Netflix is expected to add 1.9 million new subscribers, a far cry from the 1 million loss of subscribers in the same period last year. The pick-up is thanks to the rollout of its ad-based tier and its password policies beginning to pay dividends. Revenue growth will be in focus after stalling in the last few years, but a strong print would set up the framework for a solid second half of the year. However, it will be Tesla that likely steals the headlines, with the EV manufacturer delivering record vehicles in Q2 putting high expectations on its results this week. With shares climbing by 120% this year, there’s little margin for error, and it will be margins that the street will focus on. Tesla’s impressive automotive margins have been falling as of late, and more so in 2023, with significant price cuts across its range. A number below 20% might put the stock under some pressure, but investors should be prepared for it, given that Musk has said the business will focus on growth over profit.
3. Operational Updates from Rio and BHP
Australia’s long-awaited reporting season is not far from kicking off, with companies set to start handing down their full-year results in the next few weeks. Before the flurry begins, two of Australia’s biggest miners, Rio Tinto (July 18th) and BHP (July 20th), will deliver operational updates to investors this week. Both have struggled in the last three months, with shares down around 5% in both instances, in part due to China’s ailing property market, putting the miners on the back foot. Iron Ore prices, however, have picked up in the last week with more hope that China may begin to deliver the economic aid it badly needs. Although investors’ primary focus will be on full-year results in August, these operational updates offer an early picture of current and forecasted output, with potential commentary from management teams about China’s tepid recovery and how they see the current landscape.
*All data accurate as of 17/07/2023. Data Source: Bloomberg and eToro
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