Trading week preview

Taking advantage of what was a relatively quiet week in financial markets, the ASX200 managed to register new decade long highs last week, to close the month of August a respectable 1.36 per cent higher.

Source: Bloomberg

The ASX200

The ASX200 its strength and resilience last week, shrugging off the week prior’s domestic political uncertainty, to hit levels not witnessed since January 2018. The week’s high of 6373 coincided well with an upward support line previously honoured by the market and comes after bouncing of familiar support at 6240. Following an (on-balance) solid reporting season, the Australian market looks willing to track the strong activity in global equities, particularly out of the US, finding additional support too in the rapidly depreciating AUD. Further falls in the local currency have been behind much of the Australian share markets rally this year, a dynamic that may well continue this week if economic data is lacklustre and interest rates markets keep pricing out rate hikes from the RBA.0.

The Winners and Losers

The success in the ASX200 last week was broad-based, with most sectors clocking gains. A rebound in bank stocks, and therefore the broader financial sector, underpinned the Australian markets advance, paring the considerable losses sustained amid the week prior’s political chaos in Canberra. Utilities stocks were the best performing on an absolute sector-by-sector basis, climbing 2.75 per cent, while consumer staples stocks were held steady by strong activity in Bellamy’s and Blackmores share price.

The only major drag on the market last week was activity in the Telco space, which pulled back as the aura emanating from the announced merger between TPG and Vodafone faded. The share price of TPG was still one of the leaders for the week, rallying another 11.77 per cent; however, it was the diminished knock-on effect to other companies within the sector that weighed on the Telcos, with the share price of the likes of Telstra hitting near-6-month highs, before pulling back towards the $3.00 per share mark.

The little Aussie battler

The Australian Dollar suffered a horror week, falling in late-week trade to around 0.7176, to register lows not witnessed since January 2017. The local unit has faced an uphill battle recently, as interest rate traders progressively reduce bets of an interest rate hike from the RBA any time before March 2020. This view was reaffirmed by the domestic economy’s most significant economic release last week, Private Capital Expenditure data, which revealed private investment contracted by 2.5 per cent last quarter.

It was new developments in the trade war late on Friday evening (AEST) that really sunk the currency however, after it was reported that NAFTA related negotiations between the US and Canada had disintegrated. Not to say it was North American trade dynamics that caused the weakness in the AUD, but more what they represent for future negotiations between the US and its stand-off in China. As markets now prepare for the go ahead of the next round of US tariffs on China, declines in the AUD/USD towards 0.7000 look increasingly possible.

The data week ahead

The week ahead contains several high impact data events for the local economy. The week kicked-off with Monday’s Retail Sales figures, revealing that sales growth was flat in July. The soft print follows on the back of last week’s major Capex data miss, and ahead of Wednesday’s quarterly local GDP print, with commentary now mounting that domestic growth may print below the 0.8 per cent consensus forecast for that release.

It’s within this context that the RBA will meet on Tuesday afternoon, although it is assumed little will be gleaned from what is expected to be another neutral assessment of the Australian economy from the central bank. Interest may well be instead directed toward that night’s speech from RBA Governor Philip Lowe, who will speak at the bank’s board dinner in Perth, as traders search for any sliver of new information about the health of the Australian economy.

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