Global markets were mixed overnight as US equities softened, with the major news-flow coming from a number of American banks reporting quarterly results.
JPMorgan and Wells Fargo beat quarterly profit estimates but reported weaker net interest income, pointing to rising deposit costs. Goldman Sachs was higher after its results exceeded expectations. The outlook remains unclear for the sector, with falling interest rates (hurting bank margins/ profitability) and the potential for further economic weakness in the US. In saying that, the latest retail sales data overnight showed a very strong quarter for retail spending.
Closer to home, it is quiet on the company news front ahead of local reporting season across Australia & NZ in August. Generally, if there are profit downgrades to come, businesses will make these announcements early in what is called “confession season”.
Stock in Focus: Rio Tinto (RIO:ASX)
Rio Tinto offset gains posted by the other iron ore majors, BHP Group and Fortescue Metals on Tuesday. Rio's quarterly update included further details on problems with the Oyu Tolgoi underground expansion project in Mongolia – saying the estimated cost of its giant underground copper and gold mine in Mongolia could blow out by $US1.9 billion and the project may be delayed by up to two and a half years.
As we mentioned in our update last month, we believe RIO is fully priced at the moment, reflecting the recent surge in the price of iron ore. While iron ore continues to defy gravity we believe there is a risk that prices fall once sharply once supply starts to ramp back up. While management are focused on delivering value to shareholders and have performed well in recent times, RIO’s high sensitivity to the iron ore price does make it a close to pure a play on the price of iron ore.
We currently have a HOLD recommendation on RIO.
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Australia & New Zealand Market Movers
The Australian share market closed slightly lower on Tuesday (ASX 200 index -0.18%) after minutes from the Reserve Bank's July meeting dampened the equity market's expectations of further interest rate cuts. Minutes revealed the central bank stands ready to act again if required, but failed to convey a more dovish signal. After successive 25-basis-point rate cuts in June and July, the RBA said it would "continue to monitor developments in the labour market closely" in an attempt to support economic growth and prop up inflation. Investors also continued to weigh the implications of weak growth but positive retail sales from Chinese economic data released at the start of the week.
The New Zealand market continued to retrace from all-time highs yesterday (NZX 50 index -0.14%) on light volumes, with heavyweights Auckland International Airport, Fisher & Paykel Healthcare and A2 Milk weighing on the broader index. The next major domestic company reporting season is in August, although boards will need to start updating investors as they get a handle on how their companies performed during the June half. Generally, if there are profit downgrades to come, businesses will make these announcements early in what is called “confession season”.
3 Things Markets Will be Watching this Week
- US Corporate earnings season gets into gear this week.
- Chinese economic growth and activity data are amongst the highlights this week. In the US, retail spending and the Federal Reserve’s Beige Book will be keenly observed ahead of the next interest rate decision.
- In Australia, the June employment report will hog the headlines towards the end of the week.
Have a Great Day,