Financial Insights for the second week of February

What’s happening in markets and what to consider

The US dollar jumps, broad equities soften ahead of Fed speakers talking this week and more US earnings

After a hotter than expected US jobs report on Friday, equities and the VIX index, and the US dollar are on watch. Several Fed speakers are due to speak and they could disagree with the Fed’s dovish tilt last week, which could spark of a risk-off rally, and a flight to safety which could take the US dollar higher, and shave down broad indices. A bevy of EV and motor companies report this week and if Ford was something to go by last week, reporting weaker than expected profits, which resulted in its shares sinking 8% on Friday; then you may consider watching this week’s motor companies who report; Toyota Motor, Honda Motor and Volvo Car.

RBA meeting ahead, putting AUDUSD and EURAUD on watch for a potential whipsaw

The Melbourne Institute Inflation gauge for Australia rose more than expected MoM & YoY, while Australian retail sales beat expectations. These indicators, coupled with building approvals seeing one of their biggest jumps in a decade, gives the RBA power to keep hiking rates. The RBA is expected to hike by 25bp on Tuesday, with the market pricing in another 25bp hike. But, there is a small chance the RBA could keep hiking before pausing in July. The jury is still out. We are watching the AUDUSD and the EURAUD with the AUD having nose-dived as commodity prices fell from their highs, while the USD gathers strength. While the ECB hiked by 50bps last week. There is a risk the RBA could be aggressive in its commentary (more than prior meetings), which may perhaps trigger an AUD knee-jerk rally up. For more on FX, click here.

Australian reporting season ramps up; banks and property groups results are on watch

Financial results kick off with Suncorp reporting on 8th Feb- this could be a good indication of what we can expect from big banks such as CBA who reports next week. Data last year showed loan growth in regional banks grew slightly more than the big four banks; so we could see earnings surprises in Suncorp and Bank of Queensland. The market expects 25% earnings growth from Suncorp, and flat growth from CBA next week. The Telco giant, Telstra reports on Tuesday, with a flood of property groups reporting such as Centuria on Tuesday, BWP Trust – the Bunnings landlord, as well as Dexus on Wednesday, followed by Mirvac and Charter Hall Long WALE REIT reporting Thursday. For defensive plays; the plastics giant Amcor reports Tuesday. While interest rate sensitive Australian Tech companies, which are not traded very much at Saxo- start to report this week with Megaport reporting Thursday, and real estate-tech business REA on Friday.

Commodities; metals head south; breakfast commodities charge

The most strength is coming in breakfast commodities; orange juice, coffee, sugar, and soybeans, with prices mostly being supported by limited supply following the hurricanes last year. While wheat and lean hogs are lower. In metals, we’re seeing price weakness in commodities that have been benefiting from Chinese demand picking up. Iron ore, copper, and aluminum appear to be facing selling pressure, with investors and traders taking profits, awaiting more evidence of a pickup in activity in China. While the higher US dollar is also acting as a catalyst to take profits too. That said, longer term fundamentals in metals support higher prices over the longer term. Gold is also seeing a sharp pullback from its fresh cycle highs after the US dollar strengthened (following that very strong US jobs report). That said, gold ETFs like GLD, have seen increased buying throughout the year. Click here for Ole Hansen’s commodity report.