The ASX200 fell 0.42% for the week and snapped three weeks of gains. Energy and materials dragged the index lower as major miners BHP (BHP) and Rio Tinto (RIO) struggled. Investors also monitored the start of quarterly earnings in the US as the S&P500 lost 0.1% for the week.
3 things that happened last week:
1. BHP’s Production Update and Chinese GDP
BHP’s iron ore output rose by 11 per cent QoQ in Q1 2023 as China’s gradual reopening stoked commodity demand. China’s iron ore imports jumped by more than 10% in the first quarter of this year thanks to the region’s emergence from its COVID-Zero regime. With a wave of support to prop up China’s property market, steel production is recovering, which is helping to support iron ore imports. There was more positivity over China’s recovery last week with a stronger-than-expected GDP reading. China’s economy grew 4.5% in the first quarter, driven by a resurgent local consumer, while Chinese retail sales rebounded 10.6% in March on strong pent-up demand.
2. US Earnings get off to a slow start
Netflix (NFLX) added just 1.75 million new subscribers, 600,000 short of Wall Street expectations last week, as the cost of leaving squeezes budgets and households scrutinise their spending. Since going public, Netflix has suffered plenty of difficult periods but showed it knows how to navigate murky waters. In the short term, the password crackdown in Q2 could be the catalyst to drive new subscribers to the tier, calling for shareholder optimism. Tesla (TSLA) also disappointed investors last week, with earnings missing the mark and its impressive margins showing signs of erosion. The focus of the report was always going to be if Tesla could sustain its impressively high margins, but gross margin fell to 19.3%, the lowest since 2020 and much weaker than the 21.2% Wall Street expected. 20% was the key number here, and investors will be disappointed to see margins fall below that level.
3. A winner and loser last week from the S&P/ASX200
Whitehaven Coal (WHC) was a leader on the ASX200 last week, gaining by 7.4%. Despite lower production numbers, the coal miner approved investment into its new coal mine, which will fast-track production while coal prices are still elevated.
Brainchip Holdings (BRN) fell by 8.8% last week as short sellers continue to add downward pressure to the stock that has already fallen by 45% this year.
3 things to watch for the week ahead:
1. Australian Quarterly CPI
It’s a huge week on the economic front with the release of the quarterly inflation data that is crucial for the RBA’s next move. The Reserve Bank’s biggest issue continues to be inflation, which remains high at 6.8% after February’s monthly reading. After a colossal tightening cycle over the last 12 months to tame inflation, the RBA paused in April to assess the state of the economy, given that monetary policy operates with a lag. However, the pause in interest rates may be short-lived if this reading comes in hotter than the market expects, as it did in Q4 2022 at 7.8%. The monthly inflation indicators are a good reading for the RBA but don’t give the complete picture with a maximum of 73 per cent weight of the overall CPI basket, meaning this reading could provide more surprises. Expectations are for a reading of 7% with a focus on services inflation as overseas migration swells. After plenty of scrutiny over the last week, Philip Lowe and the board’s next move will be more important than ever, and the latest reading on inflation will be the focus for investors this week.
2. Pilbara and Coles hand down quarterly updates
Not long after reporting season, Pilbara Minerals (PLS) (28th) and Coles (COL) (28th) will hand down their quarterly updates this week. Pilbara Minerals is an investor favourite and saw profits soar in the first half of the financial year thanks to elevated lithium prices. However, in 2023, lithium prices have fallen dramatically, with question marks over EV demand and an end to some government subsidies globally. However, the key will be the increase in production, which should be outlined this week and help offset falling lithium prices. But, profits will still be lower in the second half of the financial year, given the price drop. Investors will also receive an update from Coles Group, whose shares have outperformed the broader market this year, up 9.2%. Investors were rewarded earlier this year with an increased dividend, and they will be hoping that another solid update can come this week. With interest rates at decade highs and housing budgets being squeezed, consumers are likely staying at home and spending more in the supermarket, a win for the group. In an uncertain economic environment, investors are looking for a defensive stock and given its essential business model, Coles is just that, so this week will see if the company is still firing on all cylinders.
3. Big Tech Earnings from Alphabet to Meta
This week is the most watched week on the quarterly earnings calendar as big tech Alphabet (GOOG), Amazon (AMZN), Microsoft (MSFT) and Meta (META) report their earnings. If last week was anything to go by, it might be a tough week ahead with Tesla’s margins squeezed and Netflix’s subscribers missing the mark. With the Nasdaq 100 soaring 19% this year and valuations for companies such as Amazon and Microsoft climbing, their earnings will be critical to justify their valuations. Last quarter saw resilient earnings, which will be needed again to support Big Tech’s performance so far in 2023. Meta shares will likely grab investors’ attention on Thursday, given the 79% jump in its share price this year. With advertising budgets dwindling, Meta’s earnings are expected to decline 27% year-over-year, but the focus will likely be on cost control after recent job cuts and broader scrutiny over other operating expenses to support profitability. Meta’s valuation at 17x forward earnings is well below its 10-year average, making it attractive to value investors, but its moderating growth will be under the microscope in this week’s report to see if the social media giant can still deliver.
*All data accurate as of 24/04/2023. Data Source: Bloomberg and eToro
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