Investors expect a bumper half-year reporting season, hoping for a string of earnings upgrades in a wave of optimism caused by improving economic conditions and anticipation that interest rates will be cut.
The Australian sharemarket has largely anticipated that the market wide earnings downgrades cycle that impacted ASX-listed companies the past few years has come to an end, having rallied 3.8 per cent this year as traders look forward to a better year for corporate profits.
The strong performance has been buoyed by recent data showing a slowdown inflation and hopes that the Reserve Bank of Australia will embark on an easing cycle at its board meeting on February 18.
Despite the optimism, the benchmark S&P/ASX 200 Index is poised to open 0.8 per cent – or 64 points – lower on Monday after Wall Street slumped at the end of last week. Markets in New York fell on Friday after the release of disappointing employment figures showed 143,000 jobs were created in January, well below the 170,000 expected. That could take a March rate cut from the US Federal Reserve off the table.
On Monday, investors in Australia will see financial updates from gloves manufacturer Ansell, online vehicle marketplace CAR Group and JB Hi-Fi, one of the largest electronics retailers in the country. The most important update will be from the Commonwealth Bank on Wednesday, with the country’s biggest bank an important indicator for the broader economy.
Investment firm Ten Cap chief executive Jason Todd said he anticipated a solid earnings season as the economy improved over the past six months. He also said he expected companies to report an improvement in margins as pressure to increase wages amid higher inflation moderated.
Mr Todd, an equity strategist by trade, also said a weak Australian dollar meant ASX-listed companies with overseas exposure were more likely to report mark to market earnings upgrades and a positive outlook.
“The weaker Australian dollar is another positive tailwind we think will ultimately be coming through in the reporting season. We know there’ll be mark to market upgrades coming,” he said.
The Australian dollar has fallen more than 9 per cent from a peak of US69¢ in September to US62.64¢. Most analysts have yet to adjust their earnings forecast to account for the slide, which accelerated after Donald Trump’s decisive victory in the US presidential election in November.
Brokers at UBS told clients a market-wide earnings downgrade cycle had largely “exhausted itself”. They tipped companies to publish more bullish earnings forecasts over the next six months as they calculate the impact of rate cuts, which will leave consumers with more to spend.
Even so, the investment bank said it expected the profits of companies in the ASX 200 to grow by just 0.2 per cent this financial year, making it on track to mark the third consecutive year of stagnant profit growth.
Source: https://www.afr.com/markets/equity-markets/asx-to-drop-despite-optimism-about-bumper-half-year-earnings-season-20250203-p5l968