ASX200 steadies the ship into month end, setting up for a busy September

With just a few hours left to go, the ASX200 will finish August in positive territory, notably aided by month-end rebalancing flows over the past 48 hours.

The ability of the local index to close higher for a second consecutive month is a commendable effort, given that key equity markets in the U.S, Germany and China, barring a miracle, will close out the month in negative territory.

More so considering the fireworks provided by the Australian reporting season, ongoing growth concerns in China and Europe and Fed Chair Powell’s hawkish message at Jackson Hole that shattered hopes of an imminent dovish pivot. 

The likely drivers of the ASX200 in September will continue to be the global thematics outlined above and key domestic macro drivers, including next week’s RBA meeting and Q2 GDP data which coincides with the start of the RBA’s tightening cycle. 

In the lead-up to next Thursday’s GDP, the early partials, including retail sales, trade, and next exports, have been buoyant. However, construction data today printed much weaker than expected at -3.8% in Q2 vs expectations for a 0.6% rise. Declines were across all sectors, with residential construction particularly weak.

Labour and material shortages are hampering activity and present some early downside risks to next week’s GDP print, with preliminary estimates sitting just above 1% q/q.

Tomorrow sees the release of the Q2 Capex survey, which contains estimates of actual and expected new capital expenditure by private businesses for selected industries in Australia.

The market is looking for a slight increase in Capex of 0.2% in the June quarter. The 3rd estimate of 2022-23 planned business investment spending will likely be around $145bn, a 12% upgrade on the 2^nd estimate, slightly below what might be expected at this stage of the year.

Turning to the RBA, our base case remains for a fourth consecutive 50bp rate hike in September, followed by a 25bp rate hike in October or November, which will take the cash rate to 2.60%, and into the mildly restrictive territory before year-end.

The RBA is then likely to pause to allow time to assess the full impact of the rate hiking cycle on inflation, growth, and labour market data.

ASX200 Daily Chart

The ASX200 has this morning tested and bounced from the lower bound of the 6960/40 support area.

Providing the ASX200 continues to hold support 6960/40 (closing basis), I expect a retest of resistance and the top of the range 7130/50 area.

Aware that a daily close below 6940 would warn that a deeper retracement is underway, initially towards 6850.

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