ASX 200 outlook, CommSec: ‘returns to be largely flat over 2020’

We examine some key levels to watch for in the Australian Dollar as well as CommSec’s outlook for Australian equities.

AUD/USD remains robust, iron ore prices elevated

As Australia’s corporate earnings season draws to a close – the ASX 200 benchmark has traded mostly flat – rising just 2.3% in the last month.

By comparison, the Australian dollar has rallied strongly – last trading at $0.735, up from approximately $0.715 at the start of August.

This comes as iron ore prices remain elevated – arguably Australia’s most important export – with CME's front month iron ore futures contract last trading above US$120 per tonne.

Elsewhere, with the Reserve Bank of Australia set to meet tomorrow, 1 September, according to IG’s market analyst Kyle Rodda, we could potentially see volatility in the Australian dollar, with it being noted that:

‘The AUD/USD has traded less according to Australian economic fundamentals recently, and more according to sentiment in global financial markets, and the fortunes of the US Dollar.

Mr Rodda said that regardless of what the RBA does at tomorrow’s meeting, the Australian dollar is likely continue to trade based on the above variables. Nonetheless, it was argued that:

‘If the RBA strikes a very dovish tone, a pullback in the AUD/USD to support/resistance to around 0.7280 will be watched. If not, the pair will be given room to continue its recent rally, with the next key level around 0.7390.’

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ASX 200 earnings season and beyond: key stocks in focus

Though Australian equities have traded sharply off their March lows, they remain significantly off the 7,000 point level achieved in late February, with uncertainty around the economic outlook a key overhang for the markets.

Looking at some of the headline results August’s earnings season, we see that:

  • CBA reported robust growth across its lending portfolio and declared a 98 cent per share final dividend
  • Telstra reported solid full-year results, though guided for lower top and bottom-line figures in FY21
  • AMP announced a special dividend of 10 cents per share
  • Off the back of elevated iron ore prices, FMG revealed record profits and a $1.00 final dividend
  • Qantas saw its profits collapse 91%
  • CSL saw its share price surge after releasing its FY20 results, though the stock pulled back soon after
  • Afterpay, Zip and Sezzle all posted stratospheric growth figures, but profitability remains elusive

Looking forward, analysts from the Commonwealth Bank of Australia’s CommSec division argued that the ASX 200 benchmark is unlikely to surpass the 7,000 level again in CY20, saying:

‘We expect sharemarket returns to be largely flat over 2020, supported by easy monetary and fiscal conditions. While shares remain ‘expensive’ valuation-wise relative to history, clearly these are not normal times.’

CommSec’s analysts concluded that:

‘Corporate earnings will remain challenged in the near-term and dividend payouts are likely to be lower.’

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