Weekly recap
What happened in markets
The Australian sharemarket closed lower last week, after investors digested a combination of global economic news and domestic company earnings results. US recession fears contributed to softer commodity prices, which also didn’t help the local sharemarket. Meanwhile, the RBA’s monetary policy statement was largely as expected, with the central bank keeping its cash rate target at 4.35%. A recovery was made throughout the week, thanks in part to more positive company reports. The most notable reports came from Life360 (5.3%), AMP (8.9%) and News Corporation (4.1%). Although, not all company results were positive, as designer furniture retailer Nick Scali (-2.9%) cut its dividend and reported an 18.8% decline in profit for the year ended 30 June.
US sharemarkets finished flat last week, after what was a turbulent week for stocks. Early in the week shares fell in response to disappointing employment data, which triggered the fear that the Federal Reserve had left it too late to reduce interest rates. However, subsequent data points seemed to quell this fear, as much of the softness was unwound by Friday’s close. In response, Federal Reserve officials cautioned against overreacting to a single economic release. While the US market ended flat, there was some disparity, as large technology stocks were softer and industrials were stronger. Company specific news included Uber’s (16.2%) positive earnings result, as management’s optimistic outlook on both the core business and autonomous vehicles eased some investor concerns.
European sharemarkets saw a cautious return of risk appetite last week, as the STOXX Europe 600 rallied four consecutive days and partly recovered from a 2.9% decline the week prior. Company earnings results began to show the first positive growth since 2022, led by the Financials sector. Based on the 70% of companies that have reported in the region, the average earnings-per-share rose 3.6% year-on-year. With that being said, concerns around weaker consumer demand, especially from China, continued to linger and held back broad-based gains.
Stock & sector movements
What caught our eye
New employment data was released in the United States (US) on Thursday night, which showed that initial applications for unemployment benefits fell by the most in almost a year, helped by fewer applications in states such as Michigan, Missouri, and Texas. The decline helped reassure flustered markets that the US workforce isn’t deteriorating so much as reverting to its pre-pandemic trend.
As a result, markets responded positively, with the S&P 500 climbing 2.30% on Thursday night, its biggest gain since November 2022, followed by a further 0.50% increase on Friday night.
The new data helped ease fears of a possible recession in the US, following weaker than expected labour market data in the previous week, which showed the unemployment rate rising from 4.1% to 4.3% in July. Importantly, this data could have been affected by Hurricane Beryl, with potential for reversal in the August data.
The report on Thursday night was likely what the Federal Reserve had hoped for as it seeks a soft economic landing. This goal still appears achievable, with inflation-adjusted economic growth projected at 2.9% for the September 2024 quarter, following 2.8% growth in the June 2024 quarter.
The Fed is expected to cut rates by 0.50% in September, followed by 0.25% cuts in both November and December, potentially bringing rates down to 4.25-4.50% by the end of 2024. If these cuts occur, they would further support the economy and global share markets.
Noting the above, the Investment Committee continues to believe the recent volatility is part of a typical market correction, which usually occur every 12 months. Even with the recent modest declines, the S&P 500 in the US and the Nikkei 225 in Japan are up 24.9% and 22.7%, respectively, over the last two years.
The week ahead
This week in Australia, there will be a number of important data releases, including the monthly Consumer Confidence Index and NAB Business Survey. These will provide valuable insight into how households and businesses are feeling about current economic conditions. Meanwhile, employment data, including the Wage Price Index, will update us on the ongoing impact of higher interest rates on Australia's labour market.
Internationally, the US Producer Price Index, Consumer Price Index and Retail Sales will be crucial datapoints to test the validity of growth concerns from the last two weeks. Further, they will contribute to the Fed's decision whether to cut interest rates in their next monetary policy meeting in September.
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