The ASX200 finished lower last week, leaving the index in the red for the quarter. US stocks finished slightly lower, snapping a three-week winning streak. Earnings were the biggest driver for stocks as Carnival and FedEx both jumped on better than expected earnings, while Nike tumbled more than 20% after sales missed forecasts.
It’s a busy week ahead in Australia with retail sales data and RBA minutes. Overseas, we’ll receive US jobs data and Tesla will hand down Q2 delivery numbers, a key number that investors will be watching. US markets are closed on July 4th for Independence Day.
3 things that happened last week:
- May Inflation puts an August hike on the table
Last week, Australian inflation stalled, rising to 4% year-over-year, well above expectations of 3.8%, and much higher than the 3.6% in April. This print has now raised expectations that the RBA could raise interest rates in August. Months ago, that seemed very unlikely, but a few bad inflation readings have given the board a headache over the weeks ahead. This now puts more weight on the data readings we receive over the weeks ahead, which include Q2 inflation and unemployment. Although the RBA won’t want to make a policy mistake, they also don’t want to see the progress made on inflation unfold. In our view, we would need to see a decline in the next inflation readings for the RBA to feel some satisfaction or a hike would definitely come into question.
- VanEck files for Solana ETF
Solana has outpaced the rest of the crypto market in the past week thanks to news that ETF issuer VanEck has filed for a Solana ETF. The submission follows successful applications for bitcoin and ethereum ETFs within the last six months. According to eToro data, almost one in three retail investors in Q2 said they currently hold crypto assets, an increase from Q1 which shows a clear demand. This demand isn’t just coming from retail, but from institutions as well, something that crypto assets have longed for.
This is big for any solana investors as it is a nod of approval from one of the largest ETF issuers on the market, and shows confidence in the project, with VanEck seeing demand for the asset. However, as we have seen from other ETF applications, it certainly won’t be an easy route to acceptance and it may take time. Nonetheless, this is another major step forward in the crypto space and is once again a step closer to greater financial adoption and inclusion.
- A winner and loser last week from the S&P/ASX200
Wisetech Global was one of the winners of last week, following in the footsteps of US tech stocks. Shares gained 7.5% for the week as brokers upgraded their price targets.
However, it wasn’t such a good week for Harvey Norman. Shares fell by -9% as investors digested the impact another rate rise would have on the retailer.
3 things to watch for the week ahead:
- Retail Sales – Monday
Last week’s unexpectedly high CPI reading has shaken markets and households alike and while sometimes increased inflation can be seen as an indicator of a healthy retail environment, with hearty spending heating up the economy, it’s unlikely we’ll see that in action in today’s retail sales data.
The CPI is often driven up by consumer goods that are vulnerable to volatile price changes like automotive fuel, fruit and vegetables, and holiday travel – and the rising costs of essential goods is a much more likely culprit here, meaning that this month’s retail sales reading will probably fit the month-on-month trend of sluggish activity on main street as supermarkets, bills and the petrol pump continue to squeeze household budgets.
In fact, the latest KPMG Australia Retail Health Index did not forecast positive health in the sector until September 2025 and with rate hikes well and truly back on the RBA’s agenda, even that far off milestone could slip over the horizon.
There’s still another CPI reading between now and the next RBA rate call, so for households praying for relief (or just less bad news), nothing is yet set in stone.
We have just crossed over into a new financial year, and so next month’s retail sales data may paint a slightly more reassuring picture for retailers on-the-ground, with big deals on home entertainment and office goods likely to have motivated even frugal families to splurge a little. This may provide relief for small-to-medium businesses barely hanging in there, but it could also be enough to light further fires beneath the CPI reading.
- RBA Meeting Minutes – Tuesday
Only a month ago, the RBA appeared to be in a position where rate cuts were firmly off the table for the year, with nothing but pauses likely to define the rest of 2024. Analysts were still paying close attention to RBA meeting minutes and Governor Michelle Bullock’s public addresses for indications of a hawkish tone, but hardcore speculation on which way the rate calls may go were diminished to whispers.
That seems like a long time ago now, as inflation has come back much hotter than expected and frazzled homeowners are once again staring down the barrel of a potential hike as close as August. The RBA now finds itself in an awful situation where both the general public and hardcore economic analysts alike believe its strategy has been a failure from conception – although there is little consensus between both groups on whether the central bank should have been more or less aggressive.
Tuesday’s meeting minutes will be a key insight for the rest of the year ahead and we may see Bullock adopt a much more hawkish tone than she has in recent addresses. This is especially true if she wishes to establish the expectation of more than one raise before the year’s end. However, the board are unlikely to let one CPI reading drive their policy and therefore, next month’s quarterly CPI and employment readings will be more important than ever ahead of August’s rate decision.
- Jerome Powell Speech – Wednesday AM
While Australia contends with the potential of another hike, the US is nearing closer to a rate cut. We might get a slightly better understanding of how close that cut might be this week when we hear from Jerome Powell on Tuesday. At the start of June, both headline and core inflation cooled from the previous month, with gasoline, new vehicles and airfares seeing the biggest declines.
Although inflationary pressures remain in the US, the trend is that inflation is moderating, giving Jerome Powell and the board the freedom to cut interest rates this year. He has already pointed out in previous speeches that the US economy has made strong progress while the labour market is now in better balance. There’s no doubt that Powell won’t be in a rush to start celebrating just yet, but for now, data points do seem to be moving in a favourable direction for the Federal Reserve Governor.
A speech from Jerome Powell is always a key risk event for investors and, therefore, one to watch this week. His comments have a clear impact on markets globally. Although there isn’t likely to be anything groundbreaking in his speech this week, there still may be volatility in markets.
*All data accurate as of 01/07/2024. Data Source: Bloomberg and eToro
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