Weaker $A and profit season wash up delivers solid start
A relatively steady lead from US markets and a weaker $A has seen a firm beginning to this week’s trading.
At the index level, markets are also likely to be relatively happy with the wash up of a difficult profit reporting season. The reporting season revealed many underlying problems but at the same time had more than its fair share of positive surprises. Despite this morning’s firm start, traders are likely to be relatively cautious ahead of a big week of economic news releases in Australia, the US and China.
The weaker Aussie Dollar may provide some incentive for investors to push the ASX 200 higher. This followed $US strength based on better than anticipated US inflation data.
Friday’s news of stronger than expected US inflation looks significant. There are emerging signs that the US domestic economy is overcoming global weakness and a strong Dollar to deliver an improvement in core prices like rental, medical and airfares. If this trend consolidates, the Fed is likely to lean more towards getting ahead of the inflation curve by lifting rates than towards caution dictated by weak global economies. That will create a tendency towards $US strength over the coming year. 2016 may yet transpire to be more a case of the US economy and the Fed leading the world out of central bank stimulus than the BOJ and ECB sucking us deeper into it.
Investors will be focussed on the performance of Woolworths shares today after an extraordinary turn around on Friday. The big rally off Friday’s low might reflect a classic case of sell the rumour and buy the fact as short sellers scramble to take profit.
The Woolworths rally may also reflect a re assessment of Mr. Banducci’s appointment as CEO. While the consensus expectation was for an external appointment and cultural change, Mr. Banducci is far from being a Woolworths’ “lifer”. Markets may be prepared to give him the benefit of the doubt given his success with Dan Murphy and the fact that he is in a position to move faster on strategy implementation than an external appointment.
Despite the market turn around, Friday’s profit result reinforced the underlying pressure on Woolworths’ profit margin and rallies may be capped at this stage.
Frequently Asked Questions about this Article…
A weaker Australian Dollar can provide an incentive for investors to push the ASX 200 higher. This is because a weaker currency can make Australian exports more competitive, potentially boosting company profits and investor confidence.
The market reacted positively to the stronger than expected US inflation data. This news suggests that the US domestic economy is overcoming global weaknesses, which could lead to the Federal Reserve raising interest rates, thereby strengthening the US Dollar.
Investors are focused on Woolworths shares due to a significant rally following a turnaround on Friday. This movement might be attributed to short sellers taking profits and a reassessment of Mr. Banducci's appointment as CEO, which could lead to faster strategy implementation.
The recent profit reporting season revealed many underlying problems within companies. However, it also presented positive surprises, indicating a mixed but cautiously optimistic outlook for investors.
If the US Federal Reserve decides to raise interest rates in response to stronger inflation data, it could lead to a stronger US Dollar. This action might influence global markets by potentially leading the world out of central bank stimulus, contrasting with the approaches of the BOJ and ECB.
Mr. Banducci's appointment as Woolworths CEO is significant because, despite expectations for an external appointment, his internal experience and success with Dan Murphy's may allow for quicker strategy implementation, which could positively impact Woolworths' performance.
Woolworths' profit margin might be under pressure due to underlying challenges revealed in the recent profit reporting season. Despite market rallies, these pressures could limit the extent of share price increases.
Investors should be cautious and watch for significant economic news releases from Australia, the US, and China this week. These releases could impact market movements and investor sentiment.
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