This week in finance: Reporting season sets sail while RBA steady as she goes on rates and cuts forecasts
Friday's $24 billion dump on the ASX was not a promising omen for corporate Australia's full-year reporting season.
Just what sparked the mass rush for the exit before the show started is uncertain, but judging by futures trading over the weekend it may have been overdone and buyers may be back digging around in the discount bin early in the week
News out of the US on Friday was not great.
While the earnings season has been solid and in line with expectations, some misses by the likes of Amazon, Exxon and a pack of cigarette makers dimmed the mood.
The first estimate of Q2 GDP growing at 2.6 per cent, while much better than the revised down Q1 effort of 1.2 per cent, also disappointed.
On a positive note, consumers made a hearty contribution to the national accounts, but on the other hand a report from the Department of Labor showed wage growth slowed again and was up only 2.3 per cent on a year ago.
Miners to lift reporting season earnings
Australia's earnings growth across the board is tipped to come in at a very impressive 18 per cent.
Dig a bit deeper and the headline number is inflated by a more than doubling of profits from the miners.
Strip the miners out and earnings growth for 2017 looks to be around 6 per cent.
"Reporting season will be interesting from the perspective of how much is priced into many industrial stocks," UBS strategist David Cassidy said.
"Last August was notable for disappointment amongst highly priced companies.
"While earnings growth is better outside banks, many forecast earnings accelerations look challenging."
Mr Cassidy said it will be interesting to see if there is any evidence that a slowing in the Australian economy has spread beyond small caps.
Nasty surprises dominate pre-results announcements
While the pre-August confession season has been relatively benign, it has been the smaller companies where most of the disappointments have been found — QBE and Tabcorp stand out as notable larger-cap exceptions to this rule.
Bell Potter's Richard Coppleson has been digging around and found so far this year profit downgrades outnumber upgrades by 43 to 15.
Those downgrades have generally seen share prices fall around 15 per cent on the day, and a bit more thereafter.
"But in recent weeks many had suddenly been recovering," Mr Coppleson wrote in a note to clients
"With reporting season approaching, a few instos are buying them in anticipation that we may have seen the worst and the stock turns. So will be interesting to see if they really do turn around."
The first week sees 15 companies roll out their results including Rio Tinto [Wednesday], Suncorp [Thursday] and Crown Resorts [Friday].
Rio will hog the limelight with its first half numbers.
Underlying profit is expected to treble to around $US4.6 billion. The cash flow-turned-cash flood is expected to prompt a big jump in dividends and an opportunity to cut debt.
RBA to hold rates and cut forecasts
There are few certainties in life, but the RBA's meeting on Tuesday is one. Official rates will be on hold.
It will be a not particularly happy birthday for the RBA, 12 months since it cut cash rates to the historic low of 1.5 per cent.
Its baby — the Australian economy — is not exactly robust, growing below trend with persistently weak inflation and wages growth.
RBA governor Philip Lowe made it clear last week the central bank jalopy is stuck in neutral for a very long time, but that is not say there won't be interest in what will be a busy week in Martin Place.
The meeting will be informed by a new batch of forecasts from the RBA's research department to be made public of Friday as the quarterly Statement on Monetary Policy.
The consensus view is it will be fairly similar to the May quarter statement, but with some expectations trimmed.
GDP forecasts - particularly in the near term - are likely to revised down given the unexpectedly weak start to the year.
Longer term GDP may also be nudged down too, due to the Australian dollar's renewed vigour.
The inflation forecast is unlikely to be changed, given last week's weak reading was still pretty much where the RBA forecast it would be.
However, if the RBA believes the dollar will stay higher for longer, the inflation forecast may need a haircut too.
Housing, trade and retail figures to be released
The data flow picks up with some key information across housing, trade and retail released.
House prices [Tuesday], via CoreLogic, are expected to show another solid month's gain in July keeping annual growth above 10 per cent.
Residential approvals [Wednesday] are typically volatile. For the growing army of pundits who think things have peaked, a fall in June would not surprise.
So it's a bubble. Now what?
Regulators finally admit Australia has a property bubble, but is it too late to deflate it without popping it? asks Ian Verrender.
However, a modest rebound from the May fall would not surprise either.
As an adjunct, the Housing Industry Association publishes new home sales [Monday] for June as well. They rose 1 per cent in May.
There are plenty of moving parts in the June trade balance. Lower commodity prices and an offsetting higher Australian dollar for a start.
Throwing a dart at the board, a surplus of $1.9 billion down from the coal-fired $2.5 billion effort in May looks as reasonable as any other guess.
Retail sales for June and Q2 [Friday] may well be welcome relief after an insipid start to the year. The previous two months have been much stronger, and a third gain on the trot is entirely plausible.
Credit card data says it could be flat, the pundits are betting on a small rise.