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In New York overnight, US equities closed lower as investors concerns over the state of the global economy, particularly in China, sparked a sell-off in equities, in addition to banking stocks weighing down the market. The Dow Jones fell 1.02%, the S&P500 lost 1.16% and the tech-heavy Nasdaq fell 1.14% on Tuesday. The weakness in financial stocks on Tuesday was due to Fitch warned it may downgrade credit ratings on dozens of banks including JPMorgan Chase. The move comes just a week after Moody’s lowered its rating on 10 US banks and warning of further downgrades to come.
As of the 7th August, 84% of companies in the S&P500 had reported earnings for Q2 in the US, and of these, 79% have reported actual earnings per share above the mean EPS estimate, which is above the 5 and 10 year averages, indicating strength in the results so far this financial year in the US according to FactSet.
In Europe, markets closed lower on Tuesday as wages data in the UK weighed on investor sentiment. The UK median monthly wage, excluding bonuses, rose 7.8% in July from the prior corresponding period which is the largest annual growth rate since the records began in 2001, and provides further reason for the bank of England to continue raising interest rates to tackle inflation in the region. Unemployment in the UK also rose unexpectedly though from 4% to 4.2% in the three months to June. The STOXX600 closed Tuesday’s session 0.9% lower, Germany’s DAX fell 0.86%, the French CAC lost 1.1% and, in the UK, the FTSE100 fell 1.57%.
Retail stocks were boosted in Europe by a 7.5% rally for Marks & Spencer after the British Department store raised its profit outlook in results released on Tuesday.
The local market has been heavily driven by US market moves and local reporting season results this week with the key index closing 0.38% higher yesterday, driven by investors buying into healthcare stocks as the sector closed Tuesday’s session up 3.16%.
The RBA’s meeting minutes were released yesterday which could have boosted investor sentiment as the key takeaways were the slowing economy and acute pressure on household finances were behind the latest rate pause. We are not out of the woods yet though as the RBA did say at the latest meeting that further monetary tightening may be required to ensure inflation reaches the target 2-3% range within a reasonable timeframe.
Reporting season has ramped up into full swing this week with the retailers surprising both the market and investors. JB Hi Fi (ASX:JBH) shares rose 6% on Monday after the tech retailer reported a 4% rise in total sales to $9.6bn for FY23, inventory down 8.3% to $1.04bn which is a positive for any retailer this reporting season, and full year dividends paid hit 312cps.
Seek shares tumbled yesterday though after the online jobs marketplace reported a 16% decline in net profit after tax to $203m, despite a 10% rise in revenue to $1.225bn for FY23.
Lake Resources (ASX:LKE) soared 25% yesterday, extending the rally this week after the lithium explorer released an update on its flagship Kachi Project. The update outlined the company reported successful stage 1 extraction and injection testing at the site to support the production of high purity battery grade lithium carbonate at the Kachi Lithium brine Project.
The market rally yesterday may also have been driven by the release of Australia’s annual Wage Price Index data for Q2 coming in at growth of 3.6% which was lower than expectations of 3.7% growth, in a sign wages inflation is starting to ease.
Iron ore slipped below US$100/tonne yesterday to near its lowest intraday level since June following China’s surprise 15-basis point interest rate cut on the one-year medium-term lending facility, alongside further economic data that indicated the economy’s recovery remains sluggish.
China’s industrial production data came in at a 3.7% rise for July, down from a 4.4% rise in June and below economists’ expectations of another 4.4% rise for July. The softest manufacturing activity was reported in mining output as well as electrical machinery and apparatus output. Chinese retail sales data was also released yesterday which broadly missed expectations as consumer spend on retail in the region rose by 2.5% in July from a year ago, below expectations of a 4.5% rise.
What to watch today: