The Monday Report – 19 August 2024

This story features A2 MILK COMPANY LIMITED, and other companies. For more info SHARE ANALYSIS: A2M

The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Chris Weston, Head of Research, Pepperstone

Good morning.

We look ahead at the new trading week and the risk events that could influence sentiment, flow, and price action. We see that company earnings are still a factor, notably in Australia, but with a lack of heavyweight market cap names due to reports, the effects on the respective equity indices should be less impactful. Economic data rests on PMIs in the US, Europe, and the UK, while Fed Chair Powell’s speech at Jackson Hole will be closely monitored.

We can see in various measures of short-term FX and equity volatility readings have pulled lower, and this is likely a reflection that options traders and market makers see the event risks this week failing to set off big movement. One could argue the lower volatility dynamic and limited risk events could spell a period of consolidation in equity indices and reduces the risk of further USD selling.

Jay Powell to signal a -25bp rate cut is coming

Fed Chair Powell’s speech will be seen as the marquee event risk and will play an important role in the Fed’s communication policy and commitment to limit any shock factor when it comes to altering policy. However, despite the strong focus from market players and the high probability that Powell will signal that rate cuts are coming, I am sceptical that it will be overly impactful on markets.

A -25bp cut in the September FOMC meeting is more than fully discounted into US interest rate swaps pricing, and while Powell will likely offer a hearty dose of optionality, unless we hear Powell hint that the Fed are not ready to ease, or that the tone is skewed towards a -50bp cut, then what we hear should marry almost perfectly to market pricing.

The DNC set to further lift Kamala Harris’s prospects

Many this week will increase their focus on the US election news cycle, with the Democratic National Convention (DNC) taking place on Monday through to Wednesday. The convention shouldn’t offer any actionable signal to traders, even if scenes of unity could further lift Harris’s odds of winning the electoral college vote on 5 November.

It still feels early to express tactical US election trades, and while there is a view that traders will look to increase their sensitivity to the polling after Labor Day (2 Sept), it will not be until after the second live debate on 10 Sept that the market will start to ramp up capital allocated to election trades.

In the lead-up to Powell’s speech, cross-market price action will take some steer from the July FOMC minutes, where we’ll learn more about the number of Fed voters who called for a rate cut in the July FOMC meeting. We get also get the minutes from the recent ECB and RBA meetings, although neither should be overly market-moving and if holding EUR positions, I’d argue Eurozone PMIs (Thursday 18:00 AEST) could be the bigger drive of EUR volatility.

Gold breaks out to new highs

With the USD index (DXY) closing at the second weakest closing level of the year, gold is clearly a beneficiary of a weaker USD. Traders are also seeing signs that China could once again be adding tailwinds to the yellow metal, with news circulating that Chinese banks have been given new import quotas.

GLD ETF inflows are also something I’m closely monitoring, where on Friday we saw the third highest inflows into the GLD ETF of 2024, and clearly further inflows into the ETF could be a big kicker for the gold bulls.

We’ve seen strong activity from clients to trade the move above US$2500/oz, but the obvious question here, given the range break to new highs, is whether to chase the upside or whether we see sellers push the price back into the former trading range.

I favour playing momentum and placing buy-stop orders above US$2510/oz, in the hope that the strong form continues, where a body in motion stays in motion.

On the calendar today:

-a2 Milk ((A2M)) earnings report

-Audinate Group ((AD8)) earnings report

-Ampol ((ALD)) earnings report

-BlueScope Steel ((BSL)) earnings report

-Contact Energy ((CEN)) earnings report

-GPT Group ((GPT)) earnings report

GWA Group ((GWA)) earnings report

-Iress ((IRE)) earnings report

-Lendlease ((LLC)) earnings report

-New Hope Corp ((NHC)) earnings report

For more company results: https://fnarena.com/index.php/reporting_season/

-US July Leading economic indicator

The Australian share market over the past thirty days

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

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