Morning Wrap: ASX 200 to bounce, S&P 500 extends relief rally + Car Group, JB Hi-Fi results

The S&P 500 ended higher on Friday and was little changed for the week, the world's largest chipmaker TSMC says July revenue has surged 45% on AI demand, big investors are snapping up shares after last week's selloff and reporting season kicks up another gear (and we've got all the key numbers you need to look out for).

Let's dive in.

S&P 500 SESSION CHART

S&P 500 ticks higher, finished a little off session highs (Source: TradingView)

OVERNIGHT MARKETS

• Major US benchmarks finished higher last Friday, closing a little off best levels

• A relatively quiet session in terms of catalysts, markets continue to tick higher on bounce momentum and easing of volatility

• US weekly recap: S&P 500 -0.04%, Nasdaq -0.18%, Dow -0.60%, Russell 2000 -1.35%

• Big investors snap up bargains in tech and other stocks after latest market selloff (FT)

  • JPMorgan says its US Tactical Positioning Monitor fell to 1.5 standard deviations over the past four weeks – The S&P 500 has historically rallied ~3% over following 20 days after this signal

  • Goldman Sachs says corporates, asset managers, sovereigns and hedge funds all bought this week’s weakness in higher quality defensives

• 91% of S&P 500 companies have reported Q2 earnings, aggregate earnings are up 10.8% and 78% of companies are beating EPS expectations vs. five-year average beat rate of 77% 

• Japanese equities shed US$1.1tn in recent three-day loss but some strategists now see buying opportunity (Bloomberg)

• Hedge funds most bearish on commodity prices in at least 13 years (Bloomberg)

• BofA's Hartnett says market rout yet to breach key levels that would signal worries about hard landing (Bloomberg)

• Global oil demand needs to rise faster to absorb OPEC+ production hike (Reuters)

• Dashed soft-landing hopes roil markets but recessionary signals not alarming yet (Reuters)

STOCKS

• Taiwan Semiconductor's July sales surge nearly 45% on AI chip demand (Bloomberg)

• Disney to spend US$5bn for films and TV production across UK, EMEA (FT)

• US trucking industry shows signs of life after long downturn (FT)

CENTRAL BANKS

• Fed Governor Bowman suggests she may not be ready to support September cut as inflation remains above 2% goal (Bloomberg)

• Kansas City Fed's Schmid signals not ready to support rate cuts with inflation above target (Bloomberg)

• Richmond Fed's Barkin says more time to see if economy normalising or cooling quickly enough to warrant response (Bloomberg)

POLITICS & GEOPOLITICS

• Harris leads Trump by four pts in Pennsylvania, Michigan, Wisconsin (NY Times)

• Russia fails to push back against Ukrainian advancement in Kursk region (FT)

• Israeli strike on Gaza City kills estimated 100 people (Bloomberg)

• US, Arab allies Egypt and Qatar in urgent push to secure Israel-Hamas ceasefire (FT)

ECONOMY

• China CPI rises at fastest pace since February amid food price volatility (Bloomberg)

• French unemployment unexpectedly drops in sign Macron's unpopular labor-market reforms are bringing some results (Bloomberg)

ASX TODAY

• Aurizon reports FY24 results and buyback (AZJ)

• BHP pushed to negotiate with unions under industrial relations change (AFR)

• Car Group reports FY24 results (CAR)

• JB Hi-Fi reports FY24 results (JBH)

• Orora could attract opportunistic bidders (AFR)

• Ramsay Health Care could see potential takeover offer from European Private Equity groups including CVC, Partners Group and EQT (The Aus)

 WHAT TO WATCH TODAY

Earnings season is picking up. Here are the key reporters and what analysts are expecting (cross reference the forecasts vs. actuals – E.g. Carsales looks like a clean beat across the board, will the stock gap up and rally?):

• Aurizon – Macquarie (19-Jul) is looking for FY24 revenue of $3.81bn, EBITDA of $1.63bn and NPAT of $428m. A full-year dividend of 17.4 cents is expected, at a payout ratio of 75%. AZJ flagged at its interim result that its balance sheet is improving and pointed to a potential dividend increase and share buyback. Macquarie says a potential $100m buyback is possible.

• Beach Energy – UBS (19-Jul) forecasts FY24 revenue of $1.76bn, earnings of $326m and EPS of 14 cents as well as a full-year dividend of 3 cents per share. In my experience, BPT has a track record of rallying off of poor results (e.g. missed 1H24 results, the stock fell as much as 5.4% in early trade, only to rally back up to a 3.3% gain)

• Car Group – Macquarie (23-Jul) expects FY24 adjusted revenue of $1.09bn, EBTIDA of $578m and NPAT of $336m plus a full-year dividend of 69 cents (did not specify payout ratio). Other FY24e stats to note include volumes +4.0%, price/yield +6.2%.

• JB Hi-Fi – Everyone is expecting retail to report a weak result and outlook. Look out for one of those 'better-than-feared' outcomes where factors such as margins, dividends etc. come out better-than-expected. Citi (21-Jul) is looking for FY24 revenue of $9.54bn, EBITDA of $849m and reported net profit of $413m. A full-year dividend of 246 cents per share at a 65% payout ratio is expected. The analysts also expect gross margins to land at 22.3%.

I'm a big fan of tracking the day two performance of stocks after big catalysts. Here are the ones of interest (reported last Friday);

• Nick Scali – This FY24 result was weak at face value, with a poor outlook but there were some bright spots. Net profit was down 18.8% to $82.1m but in-line with Macquarie expectations. The company issued a final dividend of 68 cents, which was 11.5% ahead of Macquarie estimates. They also reported full-year gross margins of 65.5% vs. 64% expected. This realisation was reflected in the stock's price action on Friday (opened 6.8% lower but closed breakeven). That's a lot of upward momentum.

• Life360 – Q2 update smashed analyst expectations (You can read my breakdown here). Upgraded full-year outlook as well. I wonder if the stock will be hit with an avalanche of broker upgrades today.

BROKER MOVES

• ALS upgraded to Buy from Hold; target increased to $17.40 from $13.20 (Jefferies)

• DroneShield upgraded to Buy from Hold but target cut to $1.25 from $1.60 (Bell Potter)

• REA Group downgraded to Sell from Underweight but target increased to $164 from $161 (Jarden)

Stocks trading ex-dividend: 

• Mon 12 Aug: None

• Tue 13 Aug: None

• Wed 14 Aug: Australian Foundation Investment Co (AFI) – $0.145, Resmed (RMD) – $0.057

• Thu 15 Aug: Kovest (KOV) – $0.40, Reckon (RKN) – $0.025, Pacific Smiles (PSQ) – $0.07, Rio  Tinto (RIO) – $2.70 

• Fri 16 Aug: Argo Investments (ARG) – $0.18 

Other ASX corporate actions today: 

• Dividends paid: None

• Listing: None  

• Earnings: Aurizon (AZJ), Beach Energy (BPT), Car Group (CAR), Dexus Convenience REIT (DXC), JB Hi-Fi (JBH)

• AGMs: None

Economic calendar (AEST):

No major economic announcements.