With further weakness in US markets to end last week, it could be another soft start for the ASX this morning, but tech sentiment will largely sway things throughout the rest of the week as the likes of Apple and Microsoft trade near key technical levels.
Economic calendar and news
Last week was dominated by central bank action, with three rate hikes rolled out across Australia, the United States, and the United Kingdom.
It was the latter of these that really set the cat among the pigeons in terms of unnerving the market, with the Bank of England hiking rates for the fourth consecutive meeting and warning that inflation may still accelerate into double-digit territory, while the risk of a recession still looms as a possibility.
Locally, the economic calendar is rather light for news this week, with business and consumer confidence data the main drawcard, while the latest figures on building permits, housing approvals and new home sales will play second fiddle.
It is a different proposition in the US, however, where a deluge of speeches are scheduled for members of the Federal Reserve, and it’s likely we’ll hear more on the central bank’s views towards the interest rate outlook, the risk of a global economic slowdown, and its desire to create a ‘soft landing’ as it tightens monetary policy.
US inflation data will be published on Wednesday morning US-time, with economists predicting the first real moderation in terms of the numbers we’ve seen across recent months, albeit a reading still running at elevated levels. The consensus forecast suggests a reading of 8.1% year-on-year for April, which would be lower than the 8.5% recorded in March. The data may need to be treated with some caution, however, as lower petrol prices have played a role, but oil prices have since risen.
Staying overseas, there may also be some focus on China trade data set to be released today. Amid ongoing lockdowns across various cities, including the financial and port hub that is Shanghai, the government will publish data on imports and exports, with both expected to be sharply down versus a year ago.
Stocks on watch
While tech stocks have been the driving force for much of the volatility within the market over the last month or so, and year-to-date for that matter, Westpac (ASX: WBC) and Commonwealth Bank (ASX: CBA) will play a critical role in determining how well the ASX performs this week.
Westpac has delivered its interim results this morning for FY22, reporting a 5% decline in statutory net profits year-on-year, revenue down 8% across the same timeframe, and net interest margins facing further pressure. WBC has increased its interim dividend fractionally to 61 cents per share for the half. The news follows a solid result from National Australia Bank (ASX: NAB) last week, which made strong inroads delivering earnings growth in the commercial lending space at a time when the home loan market is rife with competition and leading to squeezed margins.
Commonwealth Bank will deliver a third-quarter trading update on Thursday, where commentary surrounding its mortgage book will be scrutinised closely in the wake of the RBA’s first rate hike in more than a decade. Although higher rates can provide lenders scope to restore margin growth, overall lending volumes can be susceptible to rate movements, especially if interest in property cools.
After a poor showing from real estate stocks last week, names like Domain Holdings (ASX: DHG), REA Group (ASX: REA), Goodman Group (ASX: GMG), Scentre Group (ASX: SCG) and Charter Hall Group (ASX: CHC) will be back on watch as investors continue to weigh up the trajectory for interest rates.
On the one hand, property prices are often viewed as being vulnerable in a rising interest rate environment if borrowing activity and demand for property subsides. The comparative yield offered by REITs also becomes less appealing against rising rates, while REITs often face higher interest costs during a rate hike cycle due to the extensive borrowings they carry on their balance sheets.
Meanwhile, China’s trade data could have an impact on a host of Hong Kong-listed logistics stocks, including those engaged with container shipping, transport services, as well as shipping and supply chain solutions. Some of the stocks from this sector include COSCO Shipping (HKG: 1919), Orient Overseas (HKG: 0316), JD Logistics (HKG: 2618), SITC Co (HKG: 1308) and China Merchants Port Co (HKG: 0144), among others.
Energy stocks, both home and abroad capped off a good week amid rising oil prices. In the US, the sector was up as much as 10% last week. With oil prices firming into the weekend, movements in the price of oil over the coming days will set the tone for whether the sector can continue rallying. Occidental Petroleum (NYSE: OXY) led the charge last week, soaring 17.9%, and it will also be watched closely this week as it reports on Tuesday US-time.
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