The week in finance: Blue-chips to fire up reporting season

Wall Street's three key indices all hit record highs on Friday and, along with another spurt in commodities, should produce a positive start to a busy week on the Australian market.

Futures trading on the ASX200 points to a 0.2 per cent rise on Monday, but the sentiment over the week is likely to be more influenced by results of genuine blue-chips such as the Commonwealth Bank, Telstra and Wesfarmers, which regularly churn out profits in terms of billions rather than paltry millions.

Markets on Friday's close:

• ASX SPI 200 futures +0.2pc at 5,677
• AUD: 76.69 US cents, 72.05 euro cents, 61.38 British pence, 87.00 Japanese yen, $NZ1.07
• US: Dow Jones +0.5 at 20,269 S&P500 +0.4pc at 2,316 NASDAQ +0.3pc at 5,227
• Europe: FTSE +0.7pc at 7,188 DAX +0.2pc at 11,667 Eurostoxx50 -0.2pc at 3,270
• Commodities: Brent oil +1.9pc at $US56.70/barrel, Gold +0.3pc at $US1,234/ounce, Iron ore +2.7pc at $US83.53/tonne

With fewer than 20 major companies posting results in the February reporting season so far, it is a bit early to draw any significant conclusions just yet.

However, AMP Capital's Shane Oliver said it is a case of so far, so good with two-thirds of results exceeding expectations compared to the norm of less than half.

"Sixty-seven per cent of companies are seeing profits up from a year ago and a stronger than expected result from Rio Tinto confirmed that the turnaround in resources sector profits is on track," Dr Oliver noted.

CBA, Telstra and Wesfarmers to dominate the week

Australia's most consistent generator of mega-profits, the Commonwealth Bank, is expected to trot out another record first-half profit on Wednesday.

The consensus forecast is for $4.8 billion plus loose change ($38 million), about 1 per cent up on the previous corresponding period and more than 5 per cent above the second half of 2016.

A fair bit of attention will centre on whether its increased lending charges have halted the erosion of margins.

Bad debts are expected to be behaving themselves and the dividend is tipped to remain at $1.98 per share.

It will also be interesting to hear from chief executive Ian Narev about the bank's decision to indefinitely suspend selling some new lines investor mortgages "to meet responsible lending and regulatory obligations".

Generally, the post-result chats with analysts and investors shy away from problematic "cultural issues" which have become the main talking point for everyone else.

Telstra is also in the frame to deliver a record first half result (Thursday).

Goldman Sachs is tipping an almost 6 per cent increase in net profit to $2.15 billion.

Competitive pressures in the mobile market will be a focus, although Telstra has been able to maintain a fairly healthy premium above the likes of Optus and Vodafone.

It is also doing well defending it patch in broadband, securing just under half of all new NBN subscriptions.

Nonetheless, what Telstra plans to do about the looming $3 billion earnings black-hole heading fast down the NBN fibre will continue to exercise the minds of investors.

Dividends are expected to be kept flat, although at a still generous 15.5 cents a share.

Wesfarmers is the last of the billion dollar-plus profit club expected to trot out a record first half (Wednesday).

Goldman Sachs has pencilled in a first-half net profit of $1.5 billion, which would eclipse the $1.4 billion in 2014 and be up around 8 per cent on last year.

While sales growth is slowing in the Coles supermarket business, Bunnings and Kmart should keep things ticking over and the coal business may contribute something positive this time rather than just the nasty write-downs of recent results.

Investors will be keen to hear how the Bunnings expansion in the United Kingdom is going.

Other key results include JB HiFi and Newcrest Mining on Monday, CSL (Wednesday), Origin Energy (Thursday) and Medibank Private (Friday).

The troubled organic baby food business Bellamy's will post what should be the final iteration of a consistently downgraded first half profit on Thursday, although it is unlikely to be met by a sigh of relief. A gnashing of shareholder teeth is more likely.

Iron ore, oil back on the boil

Commodity markets ended the week driven along by a fair tailwind of buying.

Iron ore hit a fresh two-year high, with the Platts index jumping 3 per cent to $US86.60 tonne on Friday.

Dalian iron futures jumped more than 7 per cent, while other futures contracts for copper and nickel were also scooped up, on the back of some solid Chinese import data.

January trade data showed demand in the domestic economy was growing with imports up 25 per cent in local currency terms, while iron ore imports rose by 3.4 per cent to 92 million tonnes over the month.

Oil also enjoyed a solid gain on news that the production-cut deal brokered between OPEC and Russia was holding with unprecedented rigour.

The International Energy Agency (IEA) reported a 90 per cent compliance for cuts pledged in the deal — far higher than expected and much better than the 60 per cent compliance achieved in a similar deal in 2009.

The IEA was particularly impressed with the architect of the deal — Saudi Arabia, which appears to have cut more than it was required.

The key global benchmark, Brent crude, rose almost 2 per cent, closing at $US56.70 a barrel, although that is pretty well where it started the week.

The price may have gone higher if not for news out of the US that more drilling rigs are coming on line all the time, with the total count fast approaching 600, the most since October 2015.

Jobs growth should roll on

The main economic news on the local front will be labour force figures on Thursday.

The fourth quarter of 2016 set a cracking pace of around 22,000 new jobs every month. But can it be sustained?

The market consensus is things will cool off a bit, with around 10,000 jobs created in January.

At that level, a stronger flow of people looking for jobs would lift up the participation rate and could drive up unemployment a notch to 5.9 per cent.

Tax cut talk and Fed speak to dominate in the US

It is a big week for Federal Reserve watchers with chair Janet Yellen's two-day marathon on Capitol Hill, where she will be grilled by senators on Tuesday and house representatives on Wednesday.

The Fed appears on track for three rate hikes this year.

RBC's Tom Porcelli said Dr Yellen's testimony was expected to be aligned to that view.

"One thing that will be closely watched is how forceful she is in promoting the notion that March is still on the table [for another rise]," Mr Porcelli said.

Clearly a subtext of the meeting will be about Dr Yellen's legacy ahead of her scheduled departure in January next year.

A big part of that will be how the Fed extricates itself from its quantitative easing program and shrinks its massive balance sheet.

It will be interesting to see how Dr Yellen addresses the subject when it inevitably raised.

But the big driver of sentiment in the US at the moment is speculation on tax cuts.

President Donald Trump batted away doubters about the speed he could delivery the cuts, saying he would announce something that will be "phenomenal in terms of tax" within the next two to three weeks.

So in the meantime, it is likely to be "buy on the rumour". Whether it becomes "sell on the fact" is the question for investors.

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