ASX LIVE | XJO to bounce back; China risks deflation; Earnings out today: James Hardie, Coronado, Myer, Charter Hall Long REIT

ASX 200 closed flat today, up only 0.03% after a tough day trading saw 5 sectors down and little gains made apart from Health Care which saw a 0.59% increase.

Building products company James Hardie shares climbed 14.4 % after it lifted prices in Australasia in the June quarter, pushing profit margins in the region to an all-time high.

Coronado Global Resources fell 11.6% after it reported a 24% dip in revenue.

Department store chain Myer sank 14.1% even as it upgraded its profit expectations, as weaker second-half sales figures scared investors.

ASX 200 Sector Top Performance

• Health Care up +0.59%
• Information Technology up +0.22%
• Energy up +0.16%

ASX 200 Sector Worst Performance

• Staples down -0.30%
• Real Estate down -0.19%
• Industrials down -0.10%

In news that may not surprise many here, the effects of the RBA interest rate hikes are being felt in consumer’s wallets.

The latest data from the Australian Bureau of Statistics shows growth in household spending slowed to 1.8% in June.

Cash-strapped households are buying less at the supermarket, restaurants, and clothing and homeware.

This marks it as the most prolonged contraction since the global financial crisis.

According to JPMorgan economist Tom Kennedy, the fact that services spending was also decreasing hinted at a broader slowdown.

‘We remain cautious on the outlook for household spending given our view that unemployment is likely to drift higher from current levels and the RBA will maintain a bias toward higher rates, but at the same time we expect disinflation to lift real wages and offer a partial offset,’ he said.

ABS Aust household spending growth slowed to just 1.8%yoy in June (brown line in chart). Given rising prices this implies real consumer spending is now falling as rate hikes and cost pressures hit. This is consistent with a high risk of recession – which we put at 50%
(ABS chart) pic.twitter.com/KTOuQDTM4K

— Shane Oliver (@ShaneOliverAMP) August 8, 2023

The earnings season has kicked off with some disappointment in the mining sector.

Our commodities expert Brian Chu had some choice words to say if these signal a moment for investors to be hunting for bargains, or holding back for greener times.

In his words:

‘Most of you who’ve been following the mining sector may feel that it’s been underwhelming. The near-term prospects of many companies haven’t been too encouraging.

However, this could set the foundation for a much stronger medium-term potential.’

Read more below.

https://commodities.fattail.com.au/half-empty-or-half-full-the-mining-sector-dichotomy/2023/08/07/

A common refrain from the more conservative investors is that high P/E stocks should be shunned.

In general, high P/E stocks disappoint.

Finance professor Stephen Penman summarised this view in his book, Accounting for Value:

‘There is considerable evidence that the market overprices growth, at least some of the time. High P/E stocks — growth stocks — often disappoint, delivering lower returns than low P/E stocks. The high-price multiples of the late 1990s priced growth that was not realized. Indeed, research indicates that over the last fifty years, firms on average did not deliver the long-term cash flows forecast in stock prices.’

A high earnings multiple is a promise. A promise of strong growth.

But if a P/E multiple gets high enough, the risk of overpromising and underdelivering rises.

Not always, however.

Click below to read more on the P/E ratio and why its important.

https://www.moneymorning.com.au/20230808/dispelling-myths-about-the-price-to-earnings-ratio.html

Data from China today show further pain for the economy.

The latest trade data for July showed Exports YoY was down -14.5%, lower than the already grim expectations of -12.5%.

Similar data came from July Imports YoY, showing a -12.4% decrease, considerably worse than the expected -5.0% figures market analysts had predicted.

Net foreign direct investment (FDI) has also taken a big hit, even though Chinese officials have signalled intentions to make it easier for international companies to invest within China, especially tech firms which were given priority in the last Politburo meeting.

Ouch. China’s net FDI totaled $4.9 billion, down 87% year-on-year and 76% quarter-on-quarter for Q2’23.

h/t @caixin pic.twitter.com/xVAcpLRjhc

— Smartkarma (@smartkarma) August 8, 2023

The ASX 200 remains just above flat at +0.09% at 7,316 after falling from an initial jump of +0.36%.

ASX 200 Sector Top Performance

• Materials up 0.42%
• Information Technology +0.34%
• Discretionary up +0.06%

ASX 200 Sector Worst Performance

• Real Estate down -0.38%
• Staples down -0.32%
• Energy down -0.06%

Australia Westpac consumer sentiment for August is down to -0.4%.

The prior month was +2.7%. This decline is the first since May in the index.

The AUD/USD is dipping to new session lows and is looking to test 100 hr moving average of 65.64 cents.

Charter Hall Long REIT [ASX:CLW] has reported a full-year statutory loss of $189 million for the 2023 financial year, down from $911 million a year earlier after a considerable writedown in its portfolio values.

Operating earnings of ASX-listed landlord dipped 2.3%, excluding valuation losses.

Valuation losses of $362.7 million, or 3.9%, across its $6.8 billion portfolio drove the statutory loss.

The agri-logistics sector was hardest hit, with a 15.7% write-down. Office assets were written down by 9.1%, while retail real estate was written down by 5.3%.

The landlord delivered a full-year payout of 28 cents, in line with guidance, and expects to deliver total distributions of 26 cents for fiscal 2024.

ASX 200 opens up 0.36% to 7,335.2 following Wall Street’s bounce overnight.

A big week of earnings across Australian markets as we expect Commbank and Suncorp out tomorrow, and Newcrest on Thursday.

Also on Thursday is the all-important inflation data out of America. This will be the biggest litmus test for the Fed’s next decision on interest rates and will determine the trajectory of the markets for the short term.

Here is the earnings calendar for this week:

Source: Commsec

Building products company James Hardie [ASX:JHX] blames global uncertainty, especially in North America, where its addressable market is expected to decrease between 5-18% in the calendar year 2023.

Despite these uncertainties, JHX opened up 15% on the ASX this morning as investors see strength in sales despite the slowdown in the US housing market.

The company’s net profit for the June quarter was down 3% to $240.1 million compared to the same quarter last year.

• Adjusted Net Income of AU$265 million, up 13%
• Net Sales revenue was down 5% to AU$1.45 billion for Q1.
• Operating Cash Flow increased 64% to AU$384 million.

Speaking to the results, James Hardie CEO Aaron Erter said,

‘Our team’s focus remains simple: working safely,
partnering with our customers, managing decisively, and controlling what we can control. This focus has enabled
us to start the year strong, delivering our best ever first quarter results for both Adjusted Net Income and
Operating Cash Flow.’

Myer [ASX:MYR] reported strong sales growth despite economic headwinds. FY23 final results are expected in September 2023.

• Total sales for FY23 are up 12.5% of FY22
• NPAT for FY23 is expected to be between $69-73 million and an increase of 15-21% on FY22
• Online sales are down 4.5% to $690 million but still represent 20.5% of total sales
• Total inventory is expected to be flat on last year

Good morning investors

The ASX looks to bounce back along with US markets which were up overnight.

Chinese export numbers out this morning will give a better picture of the struggling economy, but many analysts say Chinese firms cutting prices is raising the risk of a deflationary spiral.

Big day in earnings today and tomorrow in the ASX.

• $AUD up +0.03% at 65.74 US cents
• ASX futures up +0.34% to 7,276.0
• S&P 500 up +0.90%
• NASDAQ up +0.61%
• DOW up +1.16%
• FTSE down -0.13%
• STOXX up 0.27%
• SSE down -0.59%
• Bitcoin up +0.29% to $US 29,134.17
• Spot gold down -0.31% to $US 1,937.91
• Iron ore up +0.88% to $US 105.18
• Brent Crude down -0.56% to $US 85.75pb

All figures shown are from 09:25am AEST