As the Australian Securities Exchange (ASX) gears up for a robust earnings season, Wall Street has shown a strong rebound, setting the stage for a potentially positive week in global markets. While the fourth-quarter results season in the U.S. is drawing to a close, several key reports are still anticipated, particularly from the software industry, including AppLovin and Datadog. The sector is grappling with challenges posed by the rapid growth of artificial intelligence, which threatens the sustainability of valuable intellectual property.
This week will also see earnings reports from high-profile companies such as Coca-Cola, Cisco Systems, and McDonald’s. According to Shane Oliver, AMP’s Head of Investment Strategy, nearly 60% of S&P 500 companies have reported their December quarter earnings, with 79.4% surpassing expectations, slightly above the historical norm of 76.6%.
“Consensus earnings expectations have increased to 11.8% year-on-year but are likely to come in around 12.5% allowing for normal beats. Tech is leading the charge again with earnings up 26% year-on-year, financials up 12% year-on-year, and materials up 9% year-on-year,” Oliver noted.
Challenger’s Strategic Move on ASX
In a significant development, investment manager and non-bank lender Challenger has confirmed ongoing discussions to acquire ASX-listed Pepper Money. The potential acquisition involves negotiations with Pepper Money’s largest shareholder, KKR-controlled Pepper Group ANZ. If successful, the move would lead to Pepper Money’s delisting from the ASX, with Challenger and another KKR-controlled entity, Global Atlantic Financial, assuming ownership.
The proposed deal values Pepper Money at $1.2 billion, with a per-share price of $2.60. Challenger has indicated that the transaction, structured as a scheme of arrangement, would allow it to hold no more than 25% of Pepper Money shares. This strategic acquisition is expected to provide Challenger with long-term access to fixed income assets, supporting its growth and returns.
ASX Earnings Season Intensifies
The ASX reporting season is set to intensify with major players like CBA, CSL, Computershare, Origin Energy, and AGL releasing their first-half results. The banking sector is anticipated to be a focal point, with ANZ and NAB presenting their quarterly updates. Investors will be closely monitoring cost management strategies, a critical issue following the last reporting season when the banking sector saw a 5% decline, compared to a 2.7% drop in the overall market.
UBS analyst John Story highlights recent earnings per share upgrades across the banking sector, driven by higher net interest income and reduced cost expectations. Credit charges and impairments are also expected to be lower.
“CBA is expected to report a first-half cash profit of $5.2 billion, which would be relatively flat compared to the second half of 2025. Dividends are also expected to increase from the H1 2025 payout,” Story predicts.
Global Market Dynamics and Economic Indicators
Meanwhile, Japan’s share market is poised for another boost following a landslide electoral victory by Prime Minister Sanae Takaichi and her Liberal Democratic Party. The “Takaichi trade” has propelled domestic shares to record highs, while causing a selloff in Japanese government bonds and the yen. The LDP’s strengthened mandate could lead to significant policy shifts, particularly in economic and fiscal areas.
In Australia, key economic indicators are set to be released, including the Household Spending Indicator for December, which has shown strong growth in recent months. However, consumer sentiment remains pessimistic, potentially impacted by the Reserve Bank of Australia’s recent rate hike decision.
In the U.S., the focus will be on the labor market and inflation data. The consensus anticipates stable job creation and an unemployment rate holding steady at 4.4%. The Consumer Price Index (CPI) is expected to rise by 0.3% in January, which may influence future rate cut decisions.
Wall Street’s Recovery and Market Outlook
Wall Street’s recovery last Friday saw the Dow Jones Industrial Average gain 2.5%, surpassing the 50,000-point mark for the first time. The S&P 500 and Nasdaq also posted significant gains, although the tech sector continues to experience volatility. Amazon’s announcement of a substantial increase in capital expenditures for AI technology resulted in a 5.6% drop in its stock, yet chip stocks like Nvidia and Advanced Micro Devices rallied on expectations of benefiting from increased AI spending.
European markets mirrored this positive trend, with the Eurostoxx 600 up 0.9%. Futures trading suggests the ASX will open with a 1.2% gain, recovering from last week’s losses.
On the commodities front, gold prices have stabilized, trading just below $5,000 per ounce, while Brent crude oil has risen to $68.05 per barrel amid ongoing US-Iran tensions.
“I do see a bit of a safe-haven investment coming in, but bear in mind that there is still some caution after last Friday’s selloff,” OANDA market analyst Kelvin Wong commented on the gold market.
As the week unfolds, investors will be closely watching earnings reports, economic indicators, and geopolitical developments, all of which are likely to shape market dynamics in the coming days.
