Strong company earnings quell recession fears in Australia

A strong earnings season in Australia is giving investors confidence that the country will manage to escape the recessionary threat looming over much of the world.

About half of the 137 companies on the benchmark S&P/ASX 200 Index that reported full-year results in August posted positive earnings surprises, according to data compiled by Bloomberg. Soaring profits and strong dividends from firms like Commonwealth Bank of Australia and BHP Group showed companies’ resilience amid fears of a global economic slowdown. The nation’s shares are also beating a gauge of global stocks this year.

“Australian traders seemingly prefer the prospect that recession fear is not yet a worry to our local economy,” said Hebe Chen, an analyst at IG Markets.

Economic conditions are buoyant for the major commodities exporter, with the probability of recession at just 25 per cent, according to a Bloomberg survey. Whereas going by the same measure, the likelihood is at least 50 per cent for the US and UK, and 35 per cent for neighbour New Zealand.

Positive results among consumer discretionary firms and robust economic data suggest household spending is holding up as interest rates increase. The Reserve Bank is expected to deliver a half-point hike at Tuesday’s (Sep 6) meeting, in what would be its fourth straight move of that size.

“The biggest surprise to the market through the results season came from consumer stocks,” UBS Group analysts including Richard Schellbach wrote in a note. While investors expected discretionary names would struggle amid cost-of-living pain and rate hikes, retailers showed “the consumer is in fact still spending quite healthily”.

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Still, some companies offered cautious views on the domestic economy. Commonwealth Bank, the nation’s largest lender, warned that steeper borrowing costs and inflation were hitting consumer demand. Supermarket Woolworths Group also said inflationary pressures were changing customers’ shopping behaviour.

Labour shortages also remained a sticking point during the results season. National carrier Qantas Airways highlighted staffing gaps in the aviation industry, while recruitment website operator Seek flagged hearty job ad volumes. BLOOMBERG