Spotlight on earnings as sharemarket poised for solid open

The ASX 200 will gain support from Wall Street’s winning streak, with all eyes on a raft of local corporate results.

Australia’s biggest retailers will begin reporting their financial results this week, revealing a snapshot of consumer spending habits. Picture: NCA Newswire/ Seb Haggett

The local sharemarket is on track for a solid open on Monday, with all eyes on a raft of annual earnings results due for release ahead of the market open.

Futures markets were pointing to a rise of 0.37 per cent in the benchmark S&P/ASX 200 Index at the close of US trade.

But results from companies including Bendigo and Adelaide Bank, Beach Energy, BlueScope, JB Hi-Fi and GPT Group are expected before the local sharemarket opens trade.

Companies reporting season began in earnest last week, and has so far shown that Australia’s biggest businesses are managing spiralling costs well, highlighting their durability. Combined with US data revealing last week that inflation is beginning to slow, that is expected to provide support for the local sharemarket.

US shares jumped on Friday night, with the S&P 500 and the Nasdaq Composite posting their fourth straight week of gain, marking their longest stretch since early November when both rose for five weeks in a row.

The S&P 500 climbed 72.88 points, or 1.7 per cent to 4280.15 and the Nasdaq jumped 2.1 per cent to 13,047.19.

Investors were still buoyed by Thursday’s data on inflation, which remained near the highest it has been in decades, but eased to 8.5 per cent in July compared with 9.1 per cent in June.

But AMP chief economist Shane Oliver said it was “premature to get too excited”.

“US goods price inflation has slowed and is likely to fall further — reflecting rising inventories, lower delivery times and falling freight rates — and energy inflation may also have peaked depending on the oil price,” Dr Oliver said.

“However, services inflation is still trending up reflecting rising labour costs — which are more sticky — and this is reflected in a still rising breadth of price rises with the median inflation rate rising to a new high of 6.3 per cent year-on-year and the proportion of CPI components with price gains above 3 per cent year-on-year rising to 89 per cent.

“Of course, it will take a while to get inflation back to target. So more rate hikes from the Fed still lie ahead.”

Australia’s biggest retailers will begin reporting their financial results this week, revealing a snapshot of consumer spending habits in the wake of the RBA’s blockbuster interest rates hikes and amid concerns the sharemarket may have run ahead of itself.

But UBS strategist Richard Schellbach said to date the big banks have provided the “best barometer on the market‘s overall health”, with Commonwealth Bank, NAB and Suncorp reporting earnings last week.

Mr Schellbach said while the banks’ results were “on balance positive, and pointing towards an economy which will decelerate, but avoid recession”, uncertainty remained and said the near 6 per cent rally in Australia’s share market during the past month may be short-lived.

“After getting crunched through June on increased fears that central banks would be forced to adopt a more hawkish stance, risk assets have subsequently charged back. This about turn reflects a sentiment switch back to pricing in a soft landing,” Mr Schellbach said.

“Although we never subscribed to the hard landing camp, the speed and magnitude of the rally in equities over the last month is now looking to have run ahead of itself. Yes we think inflation will peak in Australia in the fourth quarter, and yes we expect the RBA will be cutting in the back half of next year, but a degree of uncertainty remain as to how, and ultimately if, we get there.

“More immediately equities have a decelerating economy and earnings downgrade cycle to contend with, and therefore the scope for any further gains driven by dovish rate assumption would seem limited.”

The spotlight is now cast on retailers dealing in discretionary goods, with JB Hi-Fi, Super Retail Group, Beacon Lighting and Temple & Webster reporting earnings this week, along with shopping mall owners Stockland and Vicinity Centres, plus home appliance maker Breville.

“Retail stocks are yet to report, and therefore we have received limited readings thus far on how the Aussie consumer is faring. We are likely to see a skew between the backward-looking results — which show a consumer still spending — versus more conservative outlooks.

“An impressive takeaway from the February results season was the ability of companies to maintain profit margins against such an unprecedented array of input cost, labour and supply chain pressures. A big reason why profit margins are being defended — even with cost pressures – is the strength still being seen from end demand.

“Probably the best barometer of this strength comes from the labour market, where the unemployment rate in Australia currently sits at 3.5 per cent, its lowest since 1974.

In economic news ahead, minutes from the Reserve Bank’s August policy meeting are due on Tuesday, with Australian Bureau of Statistics labour force numbers for July due on Thursday.