The ASX200 had another strong week last week, continuing its strong run since the RBA paused its hiking cycle at the start of April. For the week, the ASX200 gained over 2%, its 3rd straight week of gains, with the materials sector leading the index higher, climbing by 4%.
3 things that happened last week:
1. US Inflation eases for 9th consecutive month
US Inflation showed further signs of slowing, falling to 5% for the month of March from 6% in February. Services inflation, which has been a worry for the Federal Reserve, eased, even outside of rent prices. So, although the inflation is still high and the job is far from done, this makes the Fed’s job a little easier, especially as recession risks begin to rise. However, since the reading, markets have now all but priced in another 25bps rate hike from the Federal Reserve in May, which is likely to be its like hike in this current cycle.
2. Bitcoin hits 30k for the first time since 2022
Bitcoin (BTC) broke through $30,000 for the first time since June 2022 last week, as the crypto asset continues to its charge this year. The main driver of this recent rally has been the expectations of a faster fall in inflation and sooner-than-expected rate cuts, with investors feeling more confident taking on risk. Bitcoin breaking through $30,000 is an important level for several reasons. Firstly, it’s’ a huge psychological level for investors after building towards that level for a number of weeks and two, this is the highest price that bitcoin has recorded since the issues that clouded the crypto market in 2022, from Luna to FTX and that is a significant milestone.
3. A winner and loser last week from the S&P/ASX200
It was a great week for the materials sector, and IGO (IGO) was one of the week’s best performers, climbing 9.7%. It comes after the miner secured land to build its proposed Integrated Battery Material Facility in Western Australia.
It was a tough week for tech stocks on the local market following growing expectations the RBA may hike again in May. As a result, Brainchip Holdings (BRN) suffered, falling by 2% for the week.
3 things to watch for the week ahead:
1. RBA Meeting Minutes
The ASX200 has been on a tear after the RBA paused its hiking cycle, climbing by 1.74% in that time, but last week’s hotter-than-expected jobs report has raised expectations over another hike in May. Given this, the RBA meeting minutes released this week will be watched closely to understand the board’s thesis in pausing rates after ten consecutive hikes. The RBA’s decision to pause came after monthly inflation had eased significantly for two straight months and allowed the board time to assess the state of the economy. A focus will be on the dovish pivot after March’s minutes showed that members agreed that further tightening of monetary policy would likely be required, and therefore investors should watch for that shift in language. The attention for the RBA now moves to the Q1 Inflation reading at the end of April, which will likely tip the scale towards another hike or end this tightening cycle.
2. US Earnings Season moves into full swing with Tesla and Netflix
Q1 earnings season in the US moves into full swing this week, with heavy hitters Tesla (TSLA) and Netflix (NFLX) handing down their quarterly earnings. Expectations are for S&P500 earnings to decline by 6% this quarter compared with the same period last year, a sharp fall. Tesla reported record Q1 deliveries after substantial price cuts saw increased demand. However, the worry now turns to its impressive margins that will likely be affected by the price cuts, given that the broader automaker sector has kept prices high to maintain margins, with average US vehicle prices up in March from a year ago. As a result, earnings expectations are low, and that leaves room to the upside for Elon Musk to do his thing. Turning to Netflix, the streaming giant will be hoping to lure back investors after a tough 2022. As with much of the broader Tech sector, expectations are for earnings to decline by 17% year over year for Netflix, but the focus will be on subscriber growth and commentary around its ad-supported tier. Netflix looks set to add 2.3 million subscribers, a stark turnaround from the loss of 2 million subscribers in Q1 last year. A number above that will please the street, but anything less, may spook investors over the potential of another slowdown in growth.
3. Iron Ore Giants provide operational updates
This week sees Iron Ore giants BHP (21st) and Rio Tinto (20th) provide operational updates to investors. With both companies seeing a slower start to the year than they would have liked, expectations are low heading into both these updates. However, there is some positivity heading into both these updates, with China’s Iron Ore imports jumping by 10% in Q1 as the region continues to emerge from its COVID-Zero regime. This is a sign that Iron Ore demand is bouncing back after question marks earlier in the year. However, guidance from these two exporters may be skewed to the negative side with bad weather approaching Western Australia, with Cyclone Isla expected to have a severe impact across the mining region. Although Iron Ore prices have fallen around 8% in the last month, production numbers may be higher with this solid Chinese demand.
*All data accurate as of 17/04/2023. Data Source: Bloomberg and eToro
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