Pre-Open Data
Key Data for the Week
Australian Market
The Australian sharemarket snapped a three-day losing streak to finish higher yesterday, in preparation for the Reserve Bank of Australia’s meeting today. It is expected that the cash rate will be increased again in an attempt to combat rising inflation.
The Financials sector led the gains, as all four major banks finished in positive territory. Westpac and ANZ were the best performers, as they both added 1.3%, while NAB and Commonwealth Bank both lifted 0.8%. However, fund managers were mixed, as Australian Ethical Investment rose 4.7%, while Magellan Financial Group slumped 9.9% after it was announced co-founder, Hamish Douglass, had sold a portion of his shares in the fund.
The price of oil increased, and as a result, led the Energy sector to a 2.6% gain. Santos lifted 3.3%, while Woodside Energy and Beach Energy rose 2.7% and 2.1% respectively.
The Health Care sector also lifted during trading yesterday, up 1.8%. Gains were led by market giant CSL, which added 2.1%, while Australian Clinical Labs lifted 1.1% and Sonic Healthcare closed the session 1.3% higher.
The Australian futures market points to a relatively flat open today.
Overseas Markets
European sharemarkets finished mostly in positive territory overnight, aided by gains in the Materials and Energy sectors. The major miners rose off the back of an increase in the price of iron ore; Glencore gained 2.2% and Rio Tinto added 0.4%. By the close of trade, the STOXX Europe 600 added 0.5% and the UK’s FTSE 100 was up 0.9%, while the German DAX dropped 0.3%.
US sharemarkets were closed overnight for Independence Day.
CNIS Perspective
As we move on from one of the toughest June quarters and look forward to the back half of the year, it is interesting to view the expectations of analysts for the rest of the year.
Despite significant cuts in global GDP growth rates and fear of recession as interest rates are sharply on the increase, it is interesting to see analysts’ expectations for corporate earnings growth remain high.
Right now, the consensus view among analysts tracked by Bloomberg is for S&P 500 earnings to rise by 10.1% this year and 9.5% in 2023, roughly average growth for corporate America over the years.
Interestingly, the 2022 earnings growth expectation of 10.1% is even higher than the same expectation at the end of the March quarter, which was sitting at 9.6%.
However, earnings growth of 10% looks a far stretch, considering earnings estimates generally follow downgrades in GDP, which haven’t yet materialised.
Either analysts are right and the sharemarket is being overly pessimistic, with earnings growth likely to hold up better than the market expects, or alternatively, analysts may have been finding it hard to predict how far to cut earnings expectations due to the speed of change in macro-economic conditions in 2022 so far and are waiting on the upcoming earnings season to re-calibrate their expectations, showing they are behind the curve.
Right now, the latter seems most likely, but a combination of the two would provide an optimistic outcome for equities.
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