Market Wraps

Morning Wrap: ASX 200 futures up + The RBA's knife-edge rate decision

Tue 01 Aug 23, 8:27am (AEST)

ASX 200 futures are trading 25 points higher, up 0.34% as of 8:20 am AEST.

S&P 500 rallied in the last 15 minutes of trade to finish in positive territory, oil marks its best monthly performance since January 2022, the Fed's Financial Conditions Index showed conditions were the least tight since August 2022, China's Manufacturing PMI remained in contraction for a fourth consecutive month, traders expect the RBA to pause while economists see a hike and start your engines - It's reporting season time.

Let's dive in.


S&P 500 intraday chart
S&P 500 choppy but higher (Source: TradingView)


  • S&P 500 +0.15%, Nasdaq +0.21%, Dow +0.28%, Russell 2000 +1.09%

  • S&P 500 rallies around 0.3% in the last 15 minutes of trade to finish in positive

  • S&P 500 logged its fifth consecutive monthly gain in July

  • Dow tied a record for 13 straight daily gains and up 15 of the last 16 sessions

  • Big Tech led to the upside with Meta (+11.0%), Alphabet (+10.9%) and Nvidia (+10.5%) among the best performers in July

  • WTI up 1.3% overnight, marking its best monthly performance since Jan 2022

  • The path of least resistance last month continued to focus on disinflation momentum, rising soft-landing expectations, Peak fed, better-than-expected Q2 earnings and an improvement in market breadth

  • Fed’s Financial Conditions Index showed financial conditions the least tight since August 2022 from a peak in December 2022 (Fed)

  • Morgan Stanley's Wilson says Fed policy, late-cycle rally, not earnings, is driving US equities higher (Bloomberg)

  • Global investors cautious on China, seeking more details on property sector stimulus from Beijing (Reuters)


  • BOJ announced surprise bond-purchase operation to tamp down rates (Reuters)

  • ECB's Lagarde flags possible September rate hike even after a pause (FT)

  • BoE policy meeting could be a coinflip as market pricing for a 25 bps hike versus sell-side calling for 50 bps (Bloomberg)

  • RBA interest rate decision also on a knifes edge (Bloomberg)


  • Walmart spends US$1.4bn on buying the remaining stake in Flipkart (Bloomberg)

  • Disney brings back former executives Kevin Mayer and Tom Staggs (FT)

  • Adobe shares higher after Morgan Stanley upgraded the stock to Overweight, citing upside from AI integration across its line of products (CNBC)


Not much on the earnings front today, but approximately 30% of the S&P 500 market cap is set to report this week. 


  • China manufacturing PMI remains in contraction (FT)

  • Big Chinese cities set to implement measures to support homebuyers in bid to boost property sector (Reuters)

  • Eurozone economy returns to positive growth in Q2 (FT)

  • German retail sales fell more than expected in June (Reuters)

  • Italy GDP unexpectedly shrinks, inflation comes in-line with expectations (Reuters)

  • Excess savings built up during pandemic dwindle as inflation and interest rates rise (Reuters)

Deeper Dive

Will they or won't they: RBA Edition

The last time the Reserve Bank Board attempted a pause, they hiked one month later. Now, we'll see if lightning strikes twice in the same place or if the pause is here to stay. Traders expect today's meeting will see a pause while 15 of the 26 economists surveyed by Bloomberg expect we will see a hike. They include George Tharenou at UBS, who is defending a 12-call winning streak. Here is what he had to say to clients yesterday.

"UBS still expect the RBA to hike the cash rate by another 25 bps, to a peak of 4.35%. The most likely timing remains in August; albeit the Q2 CPI, and now the June retail data, makes it a closer call. More broadly, if the RBA don't hike in August, it would seem quite likely there has been a material dovish shift in their 'reaction function', and hence it would argue that the peak in the cash rate has been reached."

Morgan Stanley's Chris Nicol has a different view ... a drastically different view, actually.

"After soft CPI and retail sales prints, we think the RBA's dovish commentary points to another pause. Service inflation trends and resilient labour markets should see the tightening bias retained and eventually acted upon; we don’t think this is terminal."

What Nicol is saying is that he thinks they won't hike rates tomorrow - but that another hike is still coming.

This is really important because the RBA cannot be flip-flopping all the time. Inflation is still running at twice the bank's own target even as retail sales slow significantly and the leading economic indicators suggest a slowdown is already well underway. The other thing to remember is that rate hikes take between 12 and 18 months to hit the real economy in a conventional cycle. If the RBA hikes again, the effects of this hike could be felt as far out as Christmas 2024. If they pause but then hike again next month, that stretches out that lag even further and raises the terminal (endgame) rate even higher.

We'll find out who is right - and if George keeps his winning streak at 2:30pm AEST. Oh and here's how the ASX 200 has performed on rate decision days this year:

  • 7 Feb -0.46% (in-line)

  • 7 March: +0.49% (in-line)

  • 8 April: +0.18% (in-line)

  • 2 May: -0.92% (larger-than-expected)

  • 6 June: -1.2% (larger-than-expected)

  • 4 July: +0.45% (unexpected pause)

Macquarie updates its reporting season picks

To quote a well-known TV series, it's time to "start your engines"! Reporting season kicks into high gear this week and Macquarie has updated its top stocks to watch ahead of Weeks 1 and 2. It all comes as forward EPS estimates declined materially again in June.

"We continue to expect conservative initial guidance from companies in August given macro uncertainties, similar to the playbook in August 2022," analysts wrote.

For week one, they are watching ResMed (ASX: RMDand Credit Corp (ASX: CCP).

For week two, Boral (ASX: BLDand Computershare (ASX: CPU) are the preferred plays - and certainly much more preferred than Commonwealth Bank (ASX: CBA) and Charter Hall Long WALE REIT (ASX: CLW).

For complete coverage of the reporting season, turn our reporting season page. And for your must-have guide heading into August, check out the latest episode of Signal or Noise: 7 key themes (and 4 stocks) to watch this ASX reporting season.

US earnings season: Revisions, correlations and expectations

A few interesting tidbits about US corporate earnings.

Goldman Sachs' S&P 500 sector consensus earnings and sales revisions.

  • EPS upgrades: Real Estate, Communication Services and Discretionary

  • EPS downgrades: Energy, Healthcare, Materials and Utilities

Source: Goldman Sachs

Wall Street analysts expect the S&P 500 to post 15% earnings growth over the next year. The optimism stems from ongoing corporate cost cutting efforts and continued US economic growth.

Source: Factset

Approximately 44% of the companies in the S&P 500 have EPS that is negatively correlated to the US currency, according to Bloomberg.

The US Dollar Index rallied 17% between February 2021 and October 2022. It's currently down around 5% from the October high and hit a 14 month low last month. Perhaps another tailwind to consider for US earnings.

Key Events

ASX corporate actions occurring today:

  • Trading ex-div: A long list of ETFs are trading ex-div today. See the full list here

  • Dividends paid: Collins Food (CKF) – $0.15, Blackmores (BKL) – $3.29, Timah Resources (TML) – $0.003

  • Listing: Abacus Storage King (ASK) at 12:30 pm 

Economic calendar (AEST):

  • 11:30 am: Australia Building Permits

  • 11:30 am: Australia Home Loans

  • 11:45 am: China Caixin Manufacturing PMI

  • 2:30 pm: RBA Interest Rate Decision

  • 12:00 am: US ISM Manufacturing PMI 

  • 12:00 am: US JOLTs Job Openings

Written By

Hans Lee

Content Editor

Hans is a Content Editor at Livewire Markets and Market Index. He created Signal or Noise and helps write the LW-MI Morning Wrap on Tuesdays and Thursdays.

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