Strap in for a frenetic February as profit season feeds RBA’s thirst for company insights

RBA governor Michele Bullock and the central bank’s board will take stock of any signals of how households and businesses are faring. Picture: AAP

The gearing up of profit season this week is more relevant than ever given the big names reporting and that the nation is on the cusp of the Reserve Bank’s pivotal February board meeting.

Investors are set to get a good read on the state of the financial, consumer, energy and health sectors, but the Michele Bullock-led central bank will also take stock of any signals of how households and businesses are faring.

Commonwealth Bank’s interim earnings will dominate investor attention, particularly around setting the tone for the sector’s prospects for any income growth, dividend payments and the potential for further capital returns. The results will also provide an insight into how borrowers are managing with higher for longer interest rates, a reading RBA boffins will want to closely assess given CBA is the nation’s largest retail bank.

Ahead of that, consumer-facing companies Ansell, CarSales and JB Hi-Fi are all reporting on Monday, providing policymakers and central bankers a snapshot of the pulse of the consumer. Appliances group Breville reports the following day, which will add to the data and insights on retail spending patterns, input costs and the outlook.

Pharmaceuticals giant CSL and medical device group Cochlear represent the health sector this week, while energy stocks AGL and Origin Energy will update the market on key supply and demand-side dynamics amid growing questions over Australia’s ability to meet its renewable energy targets.

Profit season - for the bulk of ASX companies held in February and August - is basically information overload, with investors keen to hear how chief executives view the remainder of the fiscal year. Throw in a federal election by May 17, US President Donald Trump’s erratic tariff policies and volatile, yet rising, sharemarkets and there’s plenty of interest this time round.

That’s exacerbated by a global technology arms race and a shift to implement artificial intelligence across many industries. Australia’s stark productivity issue means investors are keen to hear about any developments on technology, data and AI and how companies are navigating the evolution.

Domestic companies will also deliver earnings against the backdrop of economists overwhelmingly expecting a rate cut when the RBA board meets on over February 17 and 18, as inflationary pressures lurking through the economy recede. Still, a rate reduction this month is by no any means a fait accompli.

A strong labour market – as is being experienced here and in the United States – complicates the picture for central banks. The unemployment rate in Australia rose to 4 per cent in December, as labour force participation edged up, although there were 56,300 additional people employed.

But as company insolvencies have spiked in the past three months domestically, and hundreds of retail stores and their staff including from brands Rivers and Katies became casualties, it may only be a matter of time before the employment data worsens. Don’t forget, Star Entertainment is also in a tenuous position and the risk of voluntary administration is real for the group’s 9000 employees.

Over the weekend, US data showed tempering jobs growth but employment remained at healthy levels. That data supports the Federal Reserve’s view of pausing its easing cycle in the near term.

While the Federal Reserve will closely assess the potential inflationary impact there of Trump’s policies, in Australia Bullock will monitor federal and state government expenditures and slated spending particularly in the lead up to the Western Australia election in March and with a federal poll looming.

Back to profit reporting season, where consensus estimates have Matt Comyn-led CBA reporting a first-half cash profit of $5.06bn, up marginally from $5.02bn in the same period a year earlier.

UBS analysts have a more bullish number of $5.18bn for the most recent half, reflecting a “benign asset quality cycle” and their expectations that net interest margins will print better-than-expected.

Investors will keenly listen to Comyn’s update around competitive intensity in the mortgage and savings markets and any growing signs of pressure on business lending margins.

Macquarie Group provides a quarterly trading update on Tuesday, as it and CBA’s three main rivals have a different year end. Macquarie rules off its year on March 31, while Westpac, National Australia Bank and ANZ have a September 30 balance date.

At the smaller end of the market, RBC analysts have identified early learning group G8 Education and online retailer Temple & Webster as among their top small company picks for profit season.

Strap in for a frenetic February.