The ASX’s winning streak came to an end on Friday with the index falling by 0.04% marking a solid run for the index amid reporting season in Australia.
Stocks rallied across the board on Friday in the US with Jerome Powell giving its clearest signal yet that the Federal Reserve will begin cutting interest rates in September. While Wall Street had already priced in the start of policy easing next month, Powell’s comments that the “time has come” validated those views. The S&P500 gained 1.5% last week.
Oil rose in early trade following escalating geopolitical tensions and gold stayed above $2,500 an ounce.
3 things that happened last week:
- Palo Alto jumps on earnings beat
Palo Alto shares jumped almost 8% overnight following better-than-expected earnings, reporting record revenue of USD$2.2 billion and earnings per share of USD$1.51. CEO Nikesh Arora pointed to Crowdstrike’s recent outage as a win for the business, with a number of vendors seeking alternative options or looking to ‘improve’ their security. Arora needs to keep his shareholders satisfied, and he’s doing so effectively for now with an attractive growth forecast for the coming fiscal year and a new $500 million share buyback. Cyber security remains a key industry to watch as enterprises globally continue to spend big on tech.
- Dominos doesn’t deliver on results
It’s been a terrible 2024 for Domino’s. Shares were already down over 40% YTD prior to this morning’s bad news that revenue and net income have missed analyst estimates, while its 1H25 trading update showed sales had also slipped. Sales in ANZ remained positive and look set to continue, but weakness in Europe and Asia remains a drag. Both these areas will need to improve if the business is to meet its sales targets for FY25. Domino’s has already identified improvements in struggling regions such as France and Japan, which, if executed correctly, should start to bear fruit in FY25. Even so, it’s going to be a big challenge to right this ship. Earnings remain highly uncertain, which is putting investors on the back foot, and we’d need to see a significant jump in volume for earnings to improve, a challenge for any company in an uncertain consumer environment.
- A winner and loser last week from the S&P/ASX200
WiseTech won the week, and shares exploded +30.5% higher after better-than-expected full-year results. Revenue for the company’s core CargoWise platform increased 33% to $880 million.
It was the tale of two earnings results at the top and bottom of the ASX last week, and Inghams didn’t fair as well. Shares fell by -22.36% after a key deal with Woolworths signalled that volumes may slow.
3 things to watch for the week ahead:
- Nvidia Earnings
The big question investors have asked in recent months is if the Magnificent Seven are really still Magnificent, with a particular focus towards Tesla following its recent poor run. However, there is no denying that Nvidia is still a standout among the seven, but investors will be watching to ensure that it doesn’t change this week when it hands down earnings.
Nvidia is undoubtedly dominating AI right now, staying ahead of peers and continuing to see huge earnings growth. As an early sign of what investors can expect from Nvidia, capital expenditures from the biggest tech names, such as Meta and Microsoft, all grew in the quarter, which indicates that the demand for AI is still strong. However, any cracks in demand, may not only affect Nvialso dia but have a broader impact on the tech sector.
Earlier this month, we also saw that Nvidia is not immune to harsh market conditions after the yen carry trade led to a global market sell-off, yet that was a mere blip in the powerhouse’s extraordinary growth.
Nvidia is the second-most held stock on the eToro platform in Australia, surpassing Apple for Q2. Nvidia was also the biggest stock riser for Q2 in Australia, with a notable 31 per cent QoQ increase in holders.
These earnings will be the focus of Wall Street this week, and investors will be waiting for these numbers to drop with bated breath. Its forecast will be in the limelight, especially after recent flaws in its latest chip, which has caused delivery setbacks that may also go on to hurt Microsoft’s next earnings report. Nvidia is expected to report earnings of $0.65 with revenue at $USD28.7 billion.
- Big AU Reports (Pilbara, BHP, Qantas)
Australia’s big earnings run continues, with reports due from Pilbara, BHP, Woolworths, Coles and Qantas this week.
Qantas’ results this week will be a strong focus after competitor airlines Bonza and Rex both entered voluntary administration recently. With reduced market competition for domestic flights, the Flying Kangaroo’s FY 2024 results are expected to turn a big profit.
One priority for CEO Vanessa Hudson is rebuilding customer loyalty and trust. In April, the airline announced a shake-up to its frequent flyer program, which involved offering 20 million reward seats to win back customers who struggled to use their points. With the plan estimated to cost Qantas around $120 million in FY25, its a bold move from Qantas, but a necessary step to improve its trust and brand sentiment moving forward, with its loyalty programme a staple with households in Australia.
The ACCC is reported to be closely watching Qantas and competitor Virgin to ensure the airlines don’t price gouge on routes previously covered by Rex, so Qantas will need to remain steadfast in its goal of improving customer sentiment to ensure the airline avoids further reputational damage that could impact its bottom line in FY25.
BHP has been an attractive proposition for investors this year. According to eToro platform data, it was among the top stock risers for Q2 with a 24 per cent QoQ increase in holders in Australia, with contrarian investors looking to take advantage of any weakness. After a challenging year, dividends will also be a major focus for BHP, after rival mining giant Rio Tinto surprised the market by keeping its generous dividend despite falling profits.
A fun finding: both BHP and Pilbara’s earnings will be of particular interest to Perth-based investors, who hold a massive preference for mining stocks. According to eToro platform data, they are 240 per cent more likely to invest in BHP Group and 128 per cent more likely to invest in Pilbara Minerals than the average Aussie. In fact,10 per cent of the city invests in Pilbara Minerals.
The bottom line is that this week is massive for company earnings, with some of the most recognised Australian companies reporting. Their results are not just important for their shareholders but will likely be the key driver of the ASX200’s performance next week.
- Monthly CPI Australia
Come Wednesday, the monthly CPI reading will be handed down, providing a crucial insight into the state of inflation in Australia.
Last month’s reading of 3.8 per cent came in as forecast and undoubtedly provided a sense of relief over at the RBA. Another reading coming in at a similar level as estimated would further solidify the belief that the central bank’s hiking cycle is well and truly wrapped up.
Ideally, the rate will come in lower than 3.8 per cent and bring us closer to the RBA’s target of two to three per cent, which it believes is a sign that inflation has been quelled. This kind of shift will firmly move the conversation towards setting a more concrete window for rate cuts.
There are already strong signs we will see a significant month-on-month reduction in the CPI. For one, the big banks have pre-emptively cut rates on term deposits, citing the imminent possibility of an RBA rate cut in the coming months – which, conveniently, has the additional benefit of improving the banks’ profit margins. Elsewhere, markets are pricing in an 89 per cent chance that the RBA will cut rates by December, albeit by a nominal amount.
With Jerome Powell hinting towards rate cuts last week, Australia remains a standout among global central banks. Imminent cuts from the Fed may signal a change in the RBA’s hawkish stance within the next month or two, but that shift will need to be supported by improving data, starting with inflation this week.
*All data accurate as of 26/08/2024. Data Source: Bloomberg and eToro
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