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Reporting season the focus for sharemarket investors this week

The Westpac-Melbourne Institute consumer sentiment index for August is among the local data points due this week. Photo: Louise KennerleyThe Australian sharemarket is set to begin the week higher after Wall Street hit a new record high at the weekend, but the local focus this week will be on company profits, with blue chips including Commonwealth Bank due to report.
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Non-farm payroll data released on Friday night showed the US economy added 255,000 new jobs in July, much higher than the expected 180,000, its second consecutive month of strong gains. The data added weight to the resilience of the world’s biggest economy, buoying the S&P 500, which rose 0.9 per cent higher to a new record 2182.9 points. Fed futures pricing pushed bets of a rate hike from the US Federal Reserve by December from 37 per cent to an almost 47 per cent chance.

Local futures trading is pointing to a 31 point, or 0.6 per cent, rise on the ASX when it opens on Monday. The index finished last week just shy of 5500 points, having fallen close to 100 points following Tuesday’s interest rate cut by the Reserve Bank of Australia.

The US dollar was a key beneficiary of the US data at the weekend, moving higher against a basket of major peers and sending the Australian dollar on a sharp tumble from US76.6¢ to just below US76¢, however after the data it settled at US76.18¢, continuing its post-interest rate cut resilience as it remains a magnet for yield seeking investors.

“There’s a lot holding the Australian dollar up, including our AAA credit rating, low government debt, high commodity prices and our growth rate relative to other economies in the G20 is quite robust,” Perpetual head of multi-asset investment strategy Matthew Sherwood said.

While the ASX has been fluctuating around the 5500 mark over the past fortnight, its resilience may be tested this week as reporting season shifts up a gear with about 17 major companies delivering their earnings results, including Commonwealth Bank of Australia, Bendigo Bank, Transurban, REA Group and Cochlear.

Bank stocks again potentially will influence the market’s direction this week, with ANZ Banking Group delivering its third-quarter update on Tuesday and CBA reporting its full-year results on Wednesday. Bank stocks were sold off heavily last week following the RBA rate cut, as investors mulled the implications of lower interest rates on the banks’ already under-pressure margins.

On the data front, the NAB business survey on Tuesday and the Westpac-Melbourne Institute consumer sentiment index are the biggest attractions.

“June outcomes were solid [for business conditions], effectively shrugging off the Brexit vote,” said TD Securities chief Asia Pacific macro-strategist Annette Beacher. “This July update incorporates the post-election extended count debacle, so may see dips in both conditions and confidence.”

However, consumer confidence in July fell below 100 points to 99.1, a state at which pessimists outnumber optimists, and Ms Beacher said the major banks’ decision not to pass on the full 25 basis-point rate cut to consumers may lead to a further contraction.

Overseas, all eyes will be on the Reserve Bank of New Zealand’s policy decision, where a 25 basis-point cut to 2 per cent is expected. However, BK Asset Management managing director Kathy Lien said the New Zealand dollar is unlikely to make a dramatic move.

“The RBNZ is expected to cut interest rates by 25bp and if [it] also adopts a neutral stance, the New Zealand dollar will rise because 2 per cent is still one of the most generous yields out there,” she said.

China also delivers some key data, including July trade balance on Monday, July consumer price index on Tuesday and retail sales and industrial production on Friday. Weak pork and vegetable prices are expected to drag on inflation, economists expect.

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