The Week Ahead
4 March

The Week Ahead – 4 March

It was another positive week for equity markets with both local and global equities up strongly. The ASX 200 Index reached an all-time high led by the resources sector (+2.3%), capping off a solid 1h24 domestic reporting season, which saw an upward revision on the earnings outlook for the market. This followed on from the most recent US reporting season, which also saw an increase in the earnings outlook. With over 80% of companies in the US S&P500 Index trading above their 200 day MA, the performance of US markets is not just linked to the ‘Magnificent Seven’.

Equally, the uptick in equity markets is against a backdrop where any cuts in cash rates remain some way off given current inflation data. While the domestic CPI print for Jan (+3.4% y/y, flat pcp) was slightly below markets estimates, key segments of non-tradeable inflation continue to remain a challenge with education (+4.7%), housing (+4.6%), food (+4.4%) and health (+3.9%) all above the RBA’s target. In the US, Core PCE CPI (+2.1% q/q) was also slightly above market estimates, although annualised PCE CPI (+2.4%) continues to remain anchored in the midpoint of the Fed’s target band. However, developed market rate cuts are off the table until the 2h24 in our view, and while this will continue to put pressure on some interest rate sensitive sectors, given the uplift in the earnings outlook we believe that equity markets can hold on to the recent gains. In addition, with the likelihood of no further rate hikes, we believe this will also assist the performance of growth assets should the earnings outlook remain sound.

This week sees the release of 4q23 (Aust) GDP data (f’cst +0.3% q/q, +1.4% y/y). While the quarterly numbers are expected to be +0.1% stronger, f’cst weaker annualised GDP (-0.7%) figures will continue to highlight the challenges facing the domestic economy. In addition, the release of ANZ job ads series will also provide a gauge to the strength of labour markets. US employment data is also due with the Un rate f’cst to remain steady at 3.7% (Feb), despite a sizeable f’cst decline in nonfarm payrolls (f’cst +200k, -153k pcp).  In China, Feb PPI data (f’cst -2.5) is likely to show further price contraction across the economy, although the broader CPI (Feb) is expected to move into positive territory (+0.2%, +1.0% pcp). A small win.

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