The ASX200 finished lower for the third consecutive week, with the index falling by -0.5% last week. Materials led the index lower, falling 3% for the week, with BHP (BHP) and Rio Tinto’s (RIO) results weighing on the index. The utilities sector led gains on the ASX, up 6% with Origin Energy (ORG) surging 15% for the week.
Looking ahead to this week, reporting season winds down with a few names left to hand down results. Overseas, Tesla will hold its highly-anticipated investor event whilst Salesforce and Nio release quarterly earnings.
3 things that happened last week:
- BHP and Rio disappoint
Two of the world’s largest miners reported their semi-annual results last week, with BHP (BHP) and Rio Tinto (RIO) both missing market expectations. As costs for both names crept higher, and commodity prices fell from their highs, both names struggled. BHP saw first-half year profits fall by 32% and cut its dividend from USD$1.50 (A$2.17) a year ago to USD$0.90 (A$1.30) a share. Rio Tinto saw profits fall by 38%, slashing its dividend by almost half from USD$4.17 (A$6.10) to USD$2.25 (A$3.29). Although China’s re-opening offers plenty of enthusiasm for investors, rising recession risks mean 2023 may not be easy for both of these companies.
- Qantas and Coles impress
Despite some big disappointments from reporting season, Qantas (QAN) and Coles (COL) delivered strong results last week. The flag carrier of Australia returned to profitability in the first half of the fiscal year, posting a net profit of AUD$1 billion compared to a loss of AUD$456 million just one year earlier. After enduring a lot of pain during the pandemic period, Qantas is now reaping the rewards of the world reopening. Coles posted a 17% boost in net income in its first half FY23 results, reinforcing the rationale behind why investors are seeking safe havens in consumer staple stocks in times of uncertainty. Inflation in Australia is red-hot at a 33-year-high, pushing food prices higher, which is helping drive revenue for the Coles group and overcoming its cost pressures.
- A winner and loser last week from the S&P/ASX200
Pilbara Minerals (PLS) reported a record half-year with net profits up a huge 989% at AUD$1.24 billion. This result meant the introduction of an inaugural dividend of $AUD0.11. As a result, shares climbed more than 2% for the week.
Dominos Pizza Enterprises (DMP) had a tough week as shares tumbled by more than 25% on weaker-than-expected results. Inflationary pressures have been significant in hurting Dominos’ margins, with profit down 28% year-over-year.
3 things to watch for the week ahead:
1. ASX200: Reporting season draws to a close
Reporting season begins to wrap up this week in what has been a mixed first half of the fiscal year for Australian companies. Some disappointing results from the ASX200’s biggest names have driven the index lower after sitting just 1% off a record high heading into reporting season. However, there are still a few names to report, and Woodside Energy (WDS) will be the focus for investors this week. The energy group has slightly underwhelmed so far this year, with shares down more than 2% as oil prices cooled. However, heading into their results this week, investors will be optimistic given its record output in Q4. Net profit is expected to climb by at least 200%, which will likely mean good news for investors in the form of an increase to its dividend. Rising recession risks mean that investors will see oil volatility heading into the 2nd half of the fiscal year, so a strong outlook will be essential from Woodside.
2. Monthly Australian Inflation
This week’s monthly CPI reading will be a key focus for the RBA heading into the upcoming rate decision in early March. It seems that another 25bps in March is already locked in, after a hotter-than-expected monthly reading of 8.4% for December in January shocked markets. But the risk from here for the RBA is that inflation remains higher for longer than they are expecting. However, markets expect the monthly number to decline this week, with consensus for a reading of 8.1% on Wednesday. A positive for investors in the inflation battle was the weaker-than-expected pace of wage growth, which would suggest that Australia will avoid a wage spiral, news that the RBA will welcome. The data also meant markets pulled back expectations on further interest rate rise, with the forecasted cash rate falling to 4.2% from 4.35%. The bottom line is that although inflation is likely to fall this week, the RBA isn’t taking their foot off the gas yet.
3. Australian GDP Q4
As the Australian economy begins to weaken, with a slowdown in consumer sales and wage growth, the question is, can Australia avoid a recession? Although RBA Governor Lowe has said the path to a soft landing remains narrow, Australia’s impressive economic record will offer investors some comfort. This week will show just how to economy is faring with the release of Q4 GDP, which is expected to show growth of 0.5% QoQ and 2.5% YoY. Since Australia fell into its first recession for 30 years in 2020, economic growth has bounced back swiftly. However, a sharp decline in retail spending through December, alongside tighter monetary policy, will likely weigh on growth. Although growth is slowing, China’s reopening will be a win locally. Whether from exports or the return of international travellers, growth will be boosted.
*All data accurate as of 27/02/2023. Data Source: Bloomberg and eToro
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