Contact earnings loom as US jobs data cools rate hike bets

Contact Energy is expected to deliver a solid result as the domestic earnings season picks up pace this week, although softer futures pricing and the emergence of El Niño conditions are seen as keeping the outlook more muted for the electricity generator-retailers.

The NZX and ASX are starting the week on the front foot with Australian futures pointing to a positive start when trading opens across the Tasman, following a strong lead on Friday in the US when softer-than-expected employment data cooled expectations for the Federal Reserve to raise interest rates.

Meanwhile, tensions in the Middle East remain high as Iran upped the ante in its demands for reopening the Strait of Hormuz, while Israel’s prime minister Benjamin Netanyahu turned down a US-backed bid to disarm Hamas.

And SpaceX surged on Friday close to its initial public offering price and Rocket Lab was on the rise ahead of the Kiwi-born space firm’s quarterly earnings.

A big surprise

US employment data on Friday was unexpectedly soft, with the world’s biggest economy shedding 23,000 jobs in July, against forecasts for growth of 83,000, while the unemployment rate eased 0.1 of a percentage point to 4.1%.

The weak jobs data prompted bond traders to pare back their expectations for rate hikes by the Federal Reserve, with CME Group’s FedWatch tool showing a 43% chance of an increase in September.

“As always, it pays not to read too much into any single month – particularly the participation data, which can be noisy,” Salt Funds Management economist Bevan Graham said in a note. “But taken alongside the broader evidence of subdued hiring, the message is increasingly one of softer labour demand rather than a labour market falling over.”

Stocks on Wall Street rallied on Friday, capping their biggest weekly gains in months, as the S&P 500 rose 0.6% and the Nasdaq Composite advanced 1.3%, while the Dow Jones Industrial Average increased a more modest 0.3% on Friday, led by Salesforce, Honeywell International, and Nvidia.

SpaceX surged on Friday, up 16% at US$133.11, as the space conglomerate staged a recovery following its first-quarter result and the release of the first tranche of locked up stock. The company sold shares at US$135 each in its IPO.

Local favourite Rocket Lab jumped 9.5% to US$82.83 on Friday, and is due to report on Monday in the US.

US corporate earnings have continued to impress with 88% of the S&P 500 having reported. FactSet data showed 86% of those companies have beaten forecasts.

Berkshire Hathaway became a net buyer of stocks for the first time in 14 quarters, with almost US$20 billion of purchases in the period, while spending about US$4.5 billion buying back its own stock. The investment giant lifted operating earnings 16% to almost US$13 billion in the quarter.

BNSF Railway, a Berkshire unit, filed a motion opposing the US$71.5 billion merger of Union Pacific and Norfolk Southern, saying it would deter investment by other rail operators. The merger would create the first trans-continental freight railroad in the US.

Bloomberg reported Las Vegas-based data centre firm Switch filed confidentially for a US IPO amid the hot demand for the artificial intelligence sector and its infrastructure players.

The Financial Times reported Chinese AI-startup Moonshot tweaked its corporate structure and brought in new investors as it seeks to win Beijing’s approval for a listing in Hong Kong.

Meanwhile, South Korea’s Yonhap news agency reported a former SK Hynix employee was sentenced to 18 months in jail for leaking information on semiconductor manufacturing tech to a Chinese firm in 2022.

Across the Atlantic, the UK’s FTSE 100 rose 0.3% on Friday, while Germany’s DAX gained 0.7% and France’s CAC 40 advanced 0.4%.

Chinese inflation data over the weekend showed consumer and producer prices rose at a slower pace in July, with cheaper petrol easing the headline figures.

US President Donald Trump has revived his threat to remove Federal Reserve governor Lisa Cook, having been blocked from firing her by the Supreme Court in a split decision in June.

More talk

Tensions in the Middle East remained elevated as Iran ruled out direct talks with the US, with foreign minister Abbas Araghchi claiming multiple violations of the peace agreement in June. The Islamic Republic still hasn’t finalised a deal with Oman to reopen the Strait of Hormuz. Brent crude oil futures slipped 0.3% to US$82.27 a barrel heading into the weekend.

The Wall Street Journal reported Iran’s demands for billions in compensation from the US, the removal of US troops from the region and the lifting of the naval blockade made it increasingly hard to reach agreement.

Meanwhile, Israeli prime minister Benjamin Netanyahu rejected a US-backed proposal for disarming Hamas.

Australian futures are pointing to a 0.4% gain for the S&P/ASX 200 index when trading opens across the Tasman, while the kiwi dollar rose to 58.86 US cents at 7am in Auckland from 58.64 cents on Friday.

Greg Boland, Moomoo market strategy consultant, said New Zealand’s S&P/NZX 50 index would probably open modestly higher after the Wall Street session.

“The focus this week shifts towards local earnings, US inflation and global interest-rate expectations,” Boland said in a note.

“New Zealand's unemployment rate has risen to 5.6%, while inflation remains elevated, leaving the RBNZ facing a difficult balance between a weaker labour market and persistent price pressures,” he said, referring to the Reserve Bank.

The local earnings season speeds up this week, with Contact expected to report a 36% lift in annual earnings after favourable hydro conditions in the past year. Still, falling futures pricing has put gentailers’ outlooks in the spotlight, with analysts predicting cautious guidance from the power companies.

Meanwhile, the New Zealand Herald reported that Genesis Energy said it was open to restarting a gas-fired turbine at its Huntly power station as the recent cold snap stretched the national power grid.

PGG Wrightson is due to report on Tuesday and Vital Healthcare Property Trust is scheduled for Thursday.

No major local data are on the radar for today.

Reporting by Paul McBeth. Image from Curious News.