S&P/ASX 200 Fundamental Analysis – August 22, 2016 – Forecast

If S&P/ASX 200 traders take their cue from Friday’s lower close in U.S. equity markets then we could see a weaker opening on Monday. With little fresh economic data this week, investors are likely to take direction from a slew of earnings reports from heavyweight companies such as Woolworths, Westfarmers, South32 and Westfield. The coming week is the biggest of the August profit season, with 87 major companies due to report.

As of Friday, close to half of listed Australian companies have already reported earnings. Unfortunately, the news wasn’t all that positive. Overall profits are down about 8 percent in financial year 2015-16. Traders blame the weakness on poor earnings from resource stocks which were dragged down by falling commodities markets.

As far as earnings are concerned this week, the important ones include Fortesque on Monday, Oil Search, Scentre Group and Healthscope on Tuesday and Westfarmers, Boral and Westfield on Wednesday.

The week ends with earnings reports from Woolworths, Amcor, Perpetual and South 32 on Thursday and Harvey Norman and Coca-Cola Amatil on Friday.

Economic news is scarce this week with the Conference Board’s Leading Index and Construction Work Done on-tap. The latter will help economists get an idea of how the domestic economy has performed over the three months to June.

The rest of the week will be dedicated to the gathering of central bankers in Jackson Hole, Wyoming with all eyes focused on U.S. Federal Reserve Chair Janet Yellen, who is scheduled to deliver a speech on Friday evening. Traders don’t expect Yellen to offer any inside into the timing of the next Fed rate hike.

The theme of the symposium is “Designing Resilient Monetary Policy Frameworks for the Future”. The topics of discussion are likely to be about the effectiveness of extreme monetary policies, including negative interest rates and quantitative easing. Some will argue that they forms of stimulus have done nothing to spark economic growth and inflation. Instead, they are overinflated financial assets.

While earnings will be the main market driver this week, traders will also be paying close attention to the direction of the Australian Dollar. It has been driven higher lately by investors seeking yield. The buying has been so strong that it has even offset the effects of the last Reserve Bank of Australia interest rate hike on August 2.

Some traders believe the Australian Dollar has room to the upside before its strength begins to exert a negative influence on Australian exports and hence the economy. However, another rate cut by the RBA and a rate hike by the Fed before the end of the year, will likely put a cap on the Aussie Dollar and likely fuel a break back into the .7300 area.

Look for a lower opening based on a general decline in demand for risky assets. However, if investors decide to shed the influence of the global stock markets then the direction of the S&P/ASX 200 will likely be determined by the strength or weakness of the key earnings reports.