All about earnings

As the US reporting season draws to a close the Australian season gets into full swing this week. Although macro factors such as a likely US rate rise, poor China data and weaker commodity prices will weigh initially, investor focus is likely to narrow on the primary evidence of corporate health – earnings reports.

Ongoing employment strength evidenced by Friday night’s US jobs data mean a September rate rise is the favoured scenario. This is a two-edged sword for shares, as the lift in rates offsets the benefits of an improving economy. The S&P 500 remains within a few percent of all time highs, despite closing at a monthly low and the fact that around a quarter of the 500 stocks are down 20% from their highs. The mathematics of this suggests strong gains in other stocks top stocks, re-iterating the strategy call of a stock pickers’ market.

Locally, bank capital raisings drove Friday’s savage sell off. Speculation of a CBA announcement of an issue at its Wednesday report is likely to keep the lid on any enthusiasm for bank shares today, despite significantly lower share prices.  Bendigo and Adelaide Bank’s reports may keep market chat simmering. Consumer health and activity is in the spotlight today as shareholders await reports from Ansell and JB HiFi. More than thirty top 200 companies are scheduled to inform the market this week.

In Australia, data releases this week are largely restricted to business and consumer temperature reads. Thursday’s Wage Price Index will take centre stage, particularly given the RBA’s exposition of the conflict between weak growth and improving employment. Upward pressure on wages would see hopes of further interest rate cuts fade further. Modest expectations of a quarterly lift of 0.6% skew the risk to the upside.

For further comment from Michael McCarthy at CMC Markets please call 02 8221 2135.