Stocks tipped to fall with Aussie dollar on a high

The Australian sharemarket is expected to start the week lower as earnings season comes to a close.

The Australian dollar skirting highs not seen since late 2018 could be one reason local sentiment is downbeat heading into the week.

The Australian sharemarket is expected to start the week lower as earnings season comes to a close, with all eyes on IOOF as rumours swirl it will launch a $1bn raising to acquire NAB’s wealth business.

ASX futures are pointing to a 0.7 per cent drop at the open, despite US sharemarkets hitting record highs on Friday.

The Australian dollar skirting highs not seen since late 2018 could be one reason local sentiment is downbeat heading into the week, said CommSec senior economist Ryan Felsman.

“Typically, when the Aussie dollar is a bit stronger that does weigh on the market. Companies with offshore earnings would certainly be impacted by that. So that could be a factor. It got up to US73.65c on Friday,” he said.

“There’s been a little bit of a disconnect between expectations around our market and what’s happening in the US.”

The local bourse is lagging US markets, with the S&P 500 and Nasdaq both hitting record highs on Friday while the S&P/ASX 200 is still 15 per cent lower than its February highs.

The focus on reporting season had been a critical aspect of the underperformance, Mr Felsman said.

“The reporting season has possibly been the worst since the last recession in terms of earnings, and also a lot of focus on downgrades, particularly around guidance and dividends. Our market has lost momentum relative to what’s going on the US.”

IOOF will be one stock to watch as it hands down its full-year results amid expectations it will announce a deal to acquire NAB’s MLC wealth business.

“If it does succeed in that transaction, then both IOOF and NAB share prices will be something to watch,” said Mr Felsman.

The materials sector should fare well today after base metal prices rose on Friday, but energy stocks could come under pressure following a drop in the oil price.

A data-heavy week will see the national accounts released on Wednesday, with expectations of a 6 per cent contraction in the June quarter. This would be the biggest contraction on record and would see Australia confirmed as being in recession for the first time since 1991.

Other data releases for the week will be home prices, building approvals, retail trade and international trade. Meanwhile, the Reserve Bank hands down its cash rate decision tomorrow, with economists broadly expecting no change to the current 0.25 per cent rate.

On Friday, the Dow Jones rose by 162 points, or 0.57 per cent, to 28,653.87, while the S&P500 gained 0.67 per cent to 3508.01 and the Nasdaq index ended 0.6 per cent higher at 11,695.63.

The S&P 500 is currently on track to record its best August gain in 34 years, with investor sentiment boosted by reports that President Trump may sign a $US1.3bn coronavirus relief bill.

Over the past week the Dow has risen 2.6 per cent, the S&P 500 3.3 per cent and the Nasdaq 3.4 per cent.

The local markets closed lower on Friday on the back of comments from US Federal Reserve chair Jerome Powell.