Latest / ausbiz a.m / 26.10.26 John Lockton Sandstone Insights
Transcript
- nadine: Well, good morning to you. It is the 26th of October 2026. I'm Nadine Blaney from Ozbiz. Start of a brand new trading week. We are expecting the ASX to come under pressure. Why? We saw Wall Street finishing Friday in the red, very much a risk-off tone. So the Dow was down by one and a quarter percent. The SP 500 about half a percent. The NASDAQ held up a bit better, slipping just two-tenths of a percent. The big driver's still oil. US crude topped $100 a barrel. That way down sentiment. Industrials were hit hard. Chipmakers and tech tried to claw back some ground, but the rotation away from those AI-related names still very much in play. So worthwhile keeping that in mind as we head into the local session. That came after a Friday session here locally that the ASX well basically went nowhere. We did see consumer discretionary though. Leading the way, it was up by two percent. materials was the drag, energy and tech also finished in the red. So let's get some, I guess, perspective on what we can expect this week. And for that, John Locton is joining us from Sandstone Insights. John, good morning to you. john: Good morning today. nadine: Look, we're at the start of a brand new trading week. Are you feeling optimistic, though? Is the question. john: Well it depends on the direction which you're which you've got your positions on, I guess, Nadine. In terms of what we're looking at here at Sandstone Insights over the course of the next next week is we've got a lot of data coming out, tier one data coming out, and central bank action this this week. so globally the centerpiece is obviously the Fed. Wednesday, Thursday, our time. we expect the Fed not to raise rates. in i in in October ahead of the midterms next next week. But we have all you know we have major central banks, ECB, Bank of Japan, Bank of Canada, even the Kiwis have meetings this week. Perhaps only the Kiwis looking to raise rates this week. And then that kind of previews, if you like, the Australian central bank meeting next week, next Tuesday, the RBA meets Melbourne Cup Day. We at this point think that they won't raise rates. That is somewhat conditional on Wednesday's CPI number here in Australia, which is the most important piece of data for traders this week here in Australia. It's going to be a large number, probably over 1% on the trimmed mean. Now we think that the the market should be across that. A lot of factors feeding into that, not least being oil feeding through. But it probably needs a number north of 1.1. on the trim mean to see the central bank, the Aussie central bank, the RBA come into play next next Tuesday. So central banks will will take a a large focus of of traders this week. I think Nadine, the other the other angle offshore will be the the US earnings. We have some of the big tech giants come through this week. So that will add information to that debate on the AI spend. And I think more importantly this week players should be able to put some more evidence out there of the AI revenue. So I think that will be a very key company company and sector specific data point as we go through the next five trading days. nadine: That is a lot of information for investors to take on board. And you couple that with what's happening still in terms of geopolitics. I mean, it's no wonder that we're having these sort of wild swings and sentiment. Would you agree? john: Yeah, so we've got the midterns obviously next next week, next Tuesday in the US, and the markets should be expecting here that that the Republicans lose both houses. That's where the opinion polls and where betting markets have been now for for a number of months. So I guess it's a question of just how much. and then as you alluded to, what does that mean for for the energy situation? we've got an additional carrier in the Gulf, another ten thousand US troops. and discussions going on around potentially what happens next in terms of potential military more more or further military action. But I think if we put that to one side, I think from a markets perspective, what we've observed both here in Australia, Asia Pack, and rest of the world is just significant rotation and repositioning of investors. Now this is I I think the first cause of this volatility i i is that a significant repositioning and particularly with global hedge funds, which are typically levered hedge funds. So, you know, some of the signals they've been watching, particularly the move up in the rates curve through the course of September and October, looks to have driven a significant repositioning in some of the the bets, some of the trades that they've had on. So I I think that's the c the primary cause. Of the volatility we're seeing both here in Australia in our market, in bond markets, and in global markets. I at this point, we don't think at Sandstone Insights that it's a it's a fundamental-based sell-off on the view that the economy or the earnings outlook is slowing. I think this is a repositioning trade viewed around some of the risks on the horizon. Oil rates, US midterns. rather than a view that some of the key drivers are are are are slowing nadine: So when it comes to the US midterms, it's i it's coming at sort of a seasonal time for markets as well. And you know, you always get those reports saying in the wake of midterms the markets did X and O. How are you sort of factoring in at Sandstone Insights when it comes to your global view, if the Republicans do lose the House and the Senate? Like does that change things significantly from an investor's perspective? john: Look, w we we we don't think so. to some respect it may you know, it takes away some of the tools that the Trump administration has around around tax and policy, more focus on the executive function, but you know, obviously much more difficult to get fundamental policy through. But I I think Nadine that to to us the the biggest driver here is is the earnings outlook for for US corporates and You know, it's a blockbuster year in twenty six in terms of earnings growth. Let's call let's call it core earnings growth, north of north of twenty-five percent and mid teens expected for twenty-seven. And I think as long as as long as those numbers you know are are largely intact as we come out, you know, the end of October, first cover first week of November after the three Q earnings season, then I think that will allow the market once some of the noise around geopolitics, et cetera, et cetera, calms down, I think that will allow the market to push higher. We are, we think, in a in a pretty phenomenal earnings, earnings environment. And we don't think that that's going to that that's going to end this month or over the next quarter. And we saw last week, late last week, Thursday, Friday, the flash PMIs. So these are the the the both manufacturing and service surveys which are run globally to assess strength of the underlying economy and in most situations they were stable or improved. So we think the world's just dealing with a pretty strong economic backdrop. Earnings are there. Slight question on how much policy, you know, central banks take away some of the you know some of the some of the support, but ultimately it's an earnings led story in this market. nadine: How does that compare to your expectations for the ASX two hundred? I mean, we've got you know, such a heavy, as we all know, exposure to the banks and the miners. not a lot of tech spend, not a lot of AI infrastructure spend, confidence cracks in that trade anyways around the globe. I mean, how does the ASX does it just follow the US markets higher potentially? john: at a at a lower beta. So if if global markets rise, the Aussie will will probably rise with it, but at a at a lower at a at a lower rate. I think in terms of what Aussie investors are looking for over the next couple of weeks, we go into a kind of mini reporting season if you like. Our Australian version, obviously the banks, thirty percent of the index very topical this time next week. So three of the big four with earnings, CBA with a trading update and Macquarie with a w w with the results as well. I think what we'll see there is is is we'll see the signs of the slowdown in housing come through. We'll see some some margin pressure. But I do think that a lot of this is already captured in in consensus estimates. So yeah, I think ANZ will produce a pretty strong result. NAB will be a little bit tricky with their capital levels and with their business banking side exposed to to the slowdown. and I think on on Westpac and C B A, Westpac we may see a little bit of a nod to to to further cost you know, further cost containment and and CBA trading update. I suspect that'll be reasonably line and length in terms of what we're looking for for for there. Macquarie to us looks like the one with with the best ability to perform strongly over the next three to six months. nadine: Great, thank you for that. also a few AGMs will come through this week. So we'll get some color around some of the company commentary. as far as today though, John Locked and Sandstone Insights, we're expecting to see the local market take a dip by about half a percent at the open, according to the futures at least. Of course, anything can happen. We'll be watching oil, that means we'll be watching the energy sector. And to John's point, keeping an eye on the banks ahead of Yeah, the November sort of reports that come through, and November well and truly knocking on our door with that RBA decision Tuesday of next week. John, thank you so much for joining us on this Monday. I hope you have wonderful day. john: Thanks for day. nadine: Take care. And thank you for listening. We'll be back tomorrow.