3 things to watch for the week ahead:
1. Australian Q1 CPI
Given the RBA’s last rate call was in March, this upcoming quarterly CPI reading will be an important one. There has been plenty of data in the meantime to indicate inflation may be gradually coming under control, coupled with last week’s news that the unemployment rate is slowly drifting upwards. A strong confirmation that inflation is approaching its target will see mortgage holders letting out a sigh of relief, as it will affirm a rate cut may be on the table in the second half of 2024.
The RBA have had a tough job of analysing fluctuating figures this year, with a strong spike in jobs at the start of the year and, of all things, Taylor Swift’s world tour skewing March’s CPI reading, but a fairly dull April may now provide more reliable data. In short: this quarterly CPI will be the first powerful indicator for the year. Expectations are for Q1 Headline CPI to rise 3.4% year-over-year, with housing set to be a major contributor as high migration continues to drive rental prices.
Markets currently see a 57% chance the RBA will cut rates in August, and recent fears around the US Fed losing confidence in inflation returning to target, have pushed back rate cuts globally. A rate cut in Q2 looks highly unlikely at this stage, but signs of inflation easing this week could put an early Q3 cut on the table. To add to that, the ASX200 could also do with some optimism after its worst week in over a year last week, so a weaker-than-expected quarterly inflation reading will be a big boost for the local market.
2. Four of the Magnificent Seven Report Earnings
Four of the ‘Magnificent 7’ US big-tech stocks report earnings this week, with only Apple (NASDAQ:AAPL) and NVIDIA (NASDAQ:NVDA) set to report later on May 2nd and 22nd, respectively.
Tech’s big performers remain crucial drivers for another S&P 500 earnings upside surprise. Importantly, this earnings surprise is needed now more than ever as expectations of a Fed rate cut continue to be pushed back. These seven huge stocks are juggernauts, accounting for 29% of the S&P500 market cap – and look set to grow profits by 37% this quarter. That’s a huge dispersion to the -3% decline expected from the rest of the 493 stocks on the S&P500.
Out of the names reporting next week, Microsoft (NASDAQ:MSFT) looks set to continue benefiting from AI Adoption, whilst Meta’s success of late looks set to continue, with earnings expected to grow by 96% for the quarter as digital advertising spending rebounds, and Zuckerberg’s efficiency continues to bear fruit. But, despite that, Tesla will likely be the name investors remain laser focused on. The EV manufacturer is set to be less than magnificent when it reports next week, with earnings set to fall by 40% with deliveries missing the mark and margins contracting on price cuts. Bottom line, Elon Musk needs to produce some magic to turn the ship around. This is one of the biggest earnings calls for Tesla in a long time, and investors need some clarity.
3. Bitcoin Post- Halving, what’s next?
Last week, bitcoin saw its fourth bitcoin halving and this week, investors will be focused on the market's reaction to the halving, given we’ve seen a sharp sell-off over the past few weeks amid rising geopolitical tensions and a pushback on rate cut expectations.
The ‘Halving’ is an event that, as the name suggests, reduces the reward for successfully mining a block by half. The bitcoin halving occurs every 210,000 blocks that are mined, and with new blocks taking about 10 minutes to be added to the chain, a halving happens roughly every four years. Before last week, the last halving was in May 2020 and the last ever halving will be sometime in the year 2140, by current estimates.
The block reward has now dropped from 6.25 bitcoin to 3.125 bitcoin per block. The annual supply inflation rate has fallen from around 1.70% to 0.84%. When supply falls, and demand is high, prices rise, and historically this has been the case with bitcoin. A look back at the data shows these gains are significant.
The halving is a highly anticipated event in the crypto world because it has generally marked the start of the next bitcoin bull market, with the price surpassing the previous all-time high within six to eight months, and the bull market peak coming 12 to 18 months after the halving. This time is different, though, as it’s the first time we’ve seen the bitcoin price surpass the previous all-time high before the block reward halving has even occurred.
The question now is whether we will see the price rally again to fresh all-time highs or if the price will fall even lower following the halving. What adds another new element to this halving is the introduction of institutional interest which has led the rally in 2024. The halving as it has in other cycles, could be the catalyst to reignite retail interest, which we’ve yet to really see in 2024 when compared to previous cycles. However, don’t be surprised to see a muted reaction in the weeks following the halving, with the larger upswings in the months ahead, which could provide investors with opportunities should we see lower prices in the weeks ahead.
Josh Gilbert, Market Analyst at eToro
Disclaimer:
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