So what lies ahead this week: June 30 profits here, some quarterly earnings in the US, a few statistics in the US and more speculation about Australian interest rates.
The great commodity shake out, especially in oil and gold, will dominate market trading in resource stocks and even the mighty BHP Billiton won’t be able to shift sentiment with an expected record profit later today.
In fact results from BHP Billiton, Qantas and Wesfarmers will dominate a busy week.
Qantas will be all about the coming year, with a new CEO in charge from November. Its recent spate of maintenance problems and questions about industrial relations concerns will also overshadow a record profit for the 2008 year.
The slumping oil price has improved the outlook for the airline, as it has for others in the oil consuming sectors here and around the world. But a slumping Australian dollar is limiting the benefit to the airline (and Aussie drivers) and also clipping US revenues.
Wesfarmers’ figures will be all about the impact of its takeover of Coles Group and how that retailer’s integration and turnaround is travelling, with the slump in local retail sales a major influence the company would not have been expecting.
Wesfarmers’ domestic businesses in industrial gas and energy, plus building products would have taken a hit, but the star will be its Queensland and NSW coal interests. The coal business will produce earnings of over $1 billion and will offset downturns or steady results elsewhere.
But important as these two companies are because of their size, the most important result will be from BHP Billion.
It’s expected to deliver a record annual profit in excess of $US15 billion ($A17.26 billion), underpinned by a strong result from its petroleum and iron ore businesses.
Chief executive Marius Kloppers will unveil the result in London this afternoon, Australian time and analysts are tipping a 14.8% improvement in 2007-08 profit to $US15.4 billion ($A17.72 billion).
Some analysts see a figure as high as $US16.2 billion from broking surveys.
The result will be driven by rises in production and prices for oil, copper, iron ore and coal in the second half of the year.
BHP Billiton’s petroleum division is expected to have done very well from the record surge in oil prices in the half.
While strong demand and prices for commodities is boosting profits, the impact of higher energy, labour and consumable costs, along with exchange rate movements, are also key issues.
The company’s coal business was hit by floods in Queensland which restricted shipments of high-priced hard coking coal for several months. The company’s nickel business was also hurt by a halving in the price of metal, while lead and zinc also took hits from slumping prices.
The iron ore business should benefit from a quarter of higher prices from the 2009 contract settlements in Asia. As well BHP will get nine months of much higher coking and thermal coal prices this year.
Those higher iron ore prices (up 85% on average), and coal (up 100% to 220%, depending on the type of coal), will be the major driving force this financial year as copper, gold, silver, lead, zinc and especially oil have plunged in price since mid-July.
As with all reporting companies the historical profits are of less interest to investors: it’s how the companies see themselves performing in the coming 12 months that will be important because the macro-economic setting is not optimistic. Already we have seen a few companies basically wiping off 2009 and trying to focus the market on 2010 and beyond.
There are no significant statistics out this week (except the minor one of car sales for last month from the ABS).
The most important economic report will be the minutes from the August Reserve Bank board meeting which left interest rates steady, but which signalled that the central bank would cut rates as soon as next month. That has been firmed up by public comments from senior RBA officials. The minutes are out tomorrow, as usual.
Of interest will be if there’s any sign of debate on the board about a rate cut after the August meeting.
In the US though some more figures that will emphasise the extent of the economy’s doldrums, but also its increasing attractiveness to international investors looking for a safe haven against what they see is a global slump over the next year.
Quarterly earnings reports include retailers, Target Corp, Home Depot and Lowe’s and tech major, Hewlett-Packard.
The Producer Price Index for July (annual rate 9.1% in June), and a consumer price rise of a huge 5.6% in July, will be important for signs that the downturn in oil prices has had an immediate impact in the US.
Housing starts and manufacturing figures will also be released this week. Tonight, the National Association of Home Builders will release its August Housing Market Index and tomorrow night the US government releases July housing starts and permits.
Figures from Federal Reserve Bank of Philadelphia on Thursday are expected to show a small rise in manufacturing output in the region last month.
The Bank of Japan will meet to consider interest rates, but is likely to leave them on hold after last week’s official news that the economy slumped in the June quarter, despite high inflation..
MONDAY:
Annual results from BHP Billion (in London and Melbourne), Seek, IiNet, BlueScope Steel and Ansell. Interim result from SinoGold.
TUESDAY:
International import figures for July from the Australian Bureau of Statistics. RBA Minutes for the board meeting on August 5. Annual results from Virgin Blue, Boral, GWA International, Oil Search, Hutch
