The Monday Report – 07 August 2023

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            [4] => ((JHX))
            [5] => ((SUN))
            [6] => ((QBE))
            [7] => ((AGL))
            [8] => ((NCM))
            [9] => ((REA))
            [10] => ((RIO))
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            [8] => NCM
            [9] => REA
            [10] => RIO
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This story features RESMED INC, and other companies.
For more info SHARE ANALYSIS: RMD
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Under the Surface

On a close of up 13 points for the ASX200 it looked like a quiet Friday. It certainly started that way, doing nothing until 11.30am, and then the index fell -38 points.

The RBA’s Statement on Monetary Policy showed a downgrade to GDP growth forecasts to 0.9% for 2023, down from 1.2% set in May, and 1.6% for 2024, down from 1.7%.

But the statement rather hedged its bets:

“Weakness in household consumption could persist for longer than expected if weak growth in aggregate real disposable income and a rising unemployment rate have larger-than-expected effects on spending, especially on households with high debt and low savings.”

But…

“Alternatively, it is possible that consumer spending could recover more quickly than currently forecast, particularly if the labour market is more resilient than expected, and as real incomes start to improve as inflation declines.”

Get out your coin. And of course a lot depends on China. At least it’s dropped the barley tariff.

Either way, the index spun on a dime at lunchtime and rallied back 40 points.

The worst performing sector on the day was healthcare (-1.2%) after a disappointing earnings result (margin pressure) from ResMed ((RMD)) had that stock down -9.3%.

The best performer was technology, despite Block ((SQ2)) falling -5.8% on its result posted in the US overnight.

Aussie bond rates ignored the SoMP and jumped 9 points, following the US, which impacted on real estate (-0.7%), utilities (-0.7%) and communication services (-0.2%).

All other sectors closed in the green, led by energy (+1.1%) on higher oil prices, materials (+0.5%) on a rebound in the iron ore price, and consumer discretionary (+0.8%), after Domino’s Pizza ((DMP)) finally found some love.

The banks did not much impact in rising 0.2%.

The fun begins in earnest this week as the local result season ramps up.

Wall Street closed lower on Friday night but our futures did not pay too much heed, closing down -11 points on Saturday morning.

One Bad Apple

Having reported in Thursday night’s aftermarket, Apple fell -4.8% on Friday, citing another quarterly fall in device revenues and guiding to a fourth for the fiscal year. Much rests on next month’s release of the iPhone 15, and whether anyone outside the Apple acolytes will bother to upgrade, and whether or not they can afford to.

The biggest company in the market is represented in all three major indices, so a -4.8% fall is market-moving. However, Wall Street was trading higher all morning, and the Dow was up 200 points around lunchtime.

Early strength was a result of the July jobs report, which showed 187,000 jobs added when 200,000 was forecast. The unemployment rate fell to 3.5% from 3.6%, and wages grew 0.4% to 4.4% annual.

Wall Street liked the numbers, because on the one hand they give the Fed more cause to pause but on the other, an economy adding 187,000 jobs is not about to fall off a cliff.

The US ten-year yield, which shot up on Thursday night, dropped -13 points to 4.06%.

Also countering Apple in the S&P and Nasdaq was an 8.3% pop for Amazon on its result. Analysts were glowing in their responses, suggesting the vast sum spent by the company during covid on improving logistics efficiencies is paying off.

But at lunchtime, Wall Street turned. There was no notable trigger, rather a return to the negative sentiment that had pervaded during the week. That sentiment is being driven by a belief Wall Street had simply run too hard and was overdue a correction.

It doesn’t have to be a major correction, just a healthy pullback, and the summer holiday month of August is typically when the market takes a break.

While the earnings season to date – with the bulk of companies now having reported – is showing around an 80% beat rate to expectations, actual earnings growth has now slowed to a level lower than was anticipated earlier. While this is the bad news, the good news is all and sundry expected the June quarter to be the earnings trough, and that 2024 should see a return to solid growth.

To that end, forecasts of how far the S&P500 could fall in this pullback are mostly benign, noting there are still buyers about who have long been hoping for a pullback so they can finally get in.

Wall Street will now hold its breath for the July CPI numbers this week, but they’re not till Thursday night.

Commodities

Oil prices posted their sixth consecutive week of gains, for the first time in over a year. Calls are becoming louder that between a global economy not slowing as much as expected, and the Saudis maintaining production discipline, triple-digit oil prices could be seen again by year’s end.

Which is not good news for headline inflation. Nor are surging wheat prices and, in Australia, crippling electricity price hikes.

The Aussie is up 0.3% at US$0.6574.

The SPI Overnight closed down -11 points or -0.2%.

The Week Ahead

Along with the CPI and PPI at the end of the week, the US will also see numbers for trade and consumer sentiment.

China will release trade and inflation data.

The UK will report June quarter GDP.

In Australia we’ll see the NAB business and Westpac confidence surveys tomorrow.

Today is a bank holiday in NSW, but should not much impact on the stock market and bank-owned brokers.

The highlight of this week is the local reporting season begins to ramp up in earnest, ahead of the flood of the following weeks.

Among the biggies reporting this week are Commonwealth Bank ((CBA)), James Hardie ((JHX)), Suncorp Group ((SUN)), QBE Insurance ((QBE)), AGL Energy ((AGL)), Newcrest Mining ((NCM)) and REA Group ((REA)).

On Thursday, Rio Tinto ((RIO)) goes rather significantly ex.

The Australian share market over the past thirty days…

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