With the Australian February reporting season now about 90 per cent complete, the ABC business desk feels its can make the big call: "It has been OK."

This week in finance: Results season wraps up (Wednesday) with around three-quarters of the ASX200 reporting higher profits than a year ago

Results season wraps up (Wednesday) with around three-quarters of the ASX200 reporting higher profits than a year ago Capex data (Thursday) expected to show a marginal increase in business investment, largely driven by the resources sector

Capex data (Thursday) expected to show a marginal increase in business investment, largely driven by the resources sector New US Federal Reserve chair Jerome Powell testifies to the House Financial Services Committee ( Tuesday & Thursday)

That is something of a relief given the ASX was pulverised in the first week as Wall Street got a nasty case of financial reflux.

There is still something of a bitter aftertaste, and concerns the valuations the market is prepared to swallow are a bit rich.

Nonetheless, the ASX200 has managed to pull back around 2 per cent since its recent nadir on February 6.

So here are some views from different perspectives of the market.

Equity strategist: David Cassidy, UBS.

"While marginally better than 'normal', Australian earnings continue to lag the global uptrend, in terms of both the rate of earnings growth and the rate of earnings revisions — both very positive globally. "The Australian listed corporate sector [much like the Australian economy] is showing relatively muted leverage to the global economic revival that is buoying earnings globally."

Equities dealer: Karen Jorritsma, Equity sales director, Citi Global Markets

"I don't know about you, but it feels like reporting season has gone pretty well this time around. Generally earnings have been positive and the outlook statements are good. So far 36 per cent of results have beaten expectations, 35 per cent were in-line and 29 per cent missed, this means 70 per cent of results to date were in-line or better than expected. Dividends were largely in-line too. Interesting to note we only downgraded the ratings on 5 stocks, and upgraded 16 names."

Economist/investment strategist: Shane Oliver, AMP

"The highest share of Australian companies seeing profit gains since the GFC, but profit growth still lagging globally where profit growth is running around 14 per cent. 46 per cent of companies exceeded expectations, slightly above the norm and 73 per cent have seen profits rise compared to the norm of around 65 per cent. Partly reflecting the uncertainty around the global correction in share prices, good beats were greeted with sharp share price gains particularly when price/earnings ratios were low [Nine and Qantas] and misses were hit hard [e.g. Blackmores]."

The reporting season saw the highest percentage of companies increasing their profit since the GFC, but Australia still lags big global markets. ( Supplied: AMP Capital )

So there you have it; good not great, but could have been worse.

Looking forward, it did not move the dial much one way or another in terms of earnings.

"Consensus estimates have basically held flat for the full 2018 financial year and 2019 as well," Mr Cassidy said.

"This is a bit better than normal but is underwhelming in comparison to recent regional and global upgrade trends."

Mr Cassidy noted a bit of inflationary pressure, while not universal, appears to be a growing issue, particularly among the miners.

"Cost pressures are beginning to come through in the resource sector as evidenced in the results of BHP Billiton, South32, Rio Tinto and Northern Star Resources," he said.

Outside the miners, Ansell, Brambles, Healthscope, Suncorp Group and Tabcorp Holdings also mentioned rising costs, while the likes of property developer Mirvac and packaging outfit Orora called out higher electricity prices as an issue.

Shovelling higher dividends at shareholders, and/or buying back their shares was again a dominant feature of reporting season — although it appears a bit ho-hum now.

"Once again there has been a clear net tendency for positive dividend/capital management surprises, particularly dividends albeit share-price reactions have been relatively muted," Mr Cassidy noted.

What's left?



There are about 20 big companies left to report before close of business on Wednesday.

The back in rude-health Bluescope has gone from the doghouse to the penthouse and Monday may see another positive surprise.

Global insurer QBE also puts out its full-year result on Monday and is more than likely to see its profit tumble by about two-thirds on Morgan Stanley figures — from $US900 million to around $$US340 million.

On Tuesday, mineral sands miner Iluka should return to the black after last year's $50 million loss with a full-year profit north of $150 million, while the market will be keen to hear from Caltex and plans to boost its retail presence.

The season is wraps up on Wednesday with cement maker Adelaide Brighton, which tends to under-promise and over-deliver, Ramsay Healthcare, which is seeing some of its offshore hospitals struggle, and the always garrulous Gerry Harvey presenting Harvey Noman's numbers.

Markets in recovery mode

Despite some jitters earlier in the week over higher inflation goading interest rates higher, Wall Street led global markets higher over the week.

A strong finish to week in the US points to a sprightly start to this week on the ASX.

Markets on Friday's close: ASX SPI 200 futures +0.5pc at 6,004, ASX 200 (Friday's close) +0.8pc at 6,000

ASX SPI 200 futures +0.5pc at 6,004, ASX 200 (Friday's close) +0.8pc at 6,000 AUD: 78.43 US cents, 63.80 euro cents, 56.14 British pence, 83.72 Japanese yen, $NZ1.07

AUD: 78.43 US cents, 63.80 euro cents, 56.14 British pence, 83.72 Japanese yen, $NZ1.07 US: Dow Jones +1.4pc at 25,310, S&P500 +1.6pc at 2747, NASDAQ +1.8pc at 7,337

US: Dow Jones +1.4pc at 25,310, S&P500 +1.6pc at 2747, NASDAQ +1.8pc at 7,337 Europe: FTSE -0.1pc at 7244 DAX +0.2pc at 12,484 Euro Stoxx50 +0.3pc at 3,441

Europe: FTSE -0.1pc at 7244 DAX +0.2pc at 12,484 Euro Stoxx50 +0.3pc at 3,441 Commodities: Brent oil +1.2pc at $US67.31/barrel, Gold -0.2pc at $US1329/ounce, Iron ore (Steel Home) +0.1pc $US77.06

Over the week US and Europe put on 0.6 per cent and 0.3 per cent respectively, but were outpaced by Asia, with China up 2.6 per cent and Australia motoring along up 1.6 per cent, kicked along by some good results and stronger commodity prices.

China's appetite for iron ore shows little sign of waning at the moment and its energy consumption, particularly of the stuff Australia produces, is soaring.

Shanghai steel futures took off on Friday in anticipation of a flurry of activity as the comrade workers pile back into factories after the Lunar New Year break.

The real action is supposed to kick in through March, but the most commonly traded iron-ore contact on the Dalian market was up more than 2 per cent on Friday, while coking coal futures were up 1.7 per cent, to their highest level since the winter pollution crackdown came into force.

Customs figures showed thermal coal imports in January of almost 8 million tonnes were up more than 9 per cent on a year ago as power utilities struggled to keep the nation warm through a particularly brutal winter.

China's liquefied natural gas (LNG) imports also hit a new monthly record in January, as China's push to cleaner fuels showed up in numbers, not just rhetoric.

The 5.2 million tonnes on LNG imported in January was 150,000 tonnes more than previous record set in December and up more than 50 per cent on a year ago.

China's LNG imports hit a fresh record in January and are more than 50pc than a year ago. ( Source: Thomson Reuters Datastream, China Customs, ABC News )

About that recovery mode thing ...

Lest one gets too complacent about this hale and hearty recovery, the big US investment bank Morgan Stanley has some rather unsettling research to mull over.

That doozy of a correction at the start of February is one of several Morgan Stanley expects this year.

That's right, one of several. Buckle up.

The good news is it will give we finance hacks something to write about. The bad news, well, it is bad news, full stop.

Morgan Stanley argues the recent equity market correction actually began back in December with the peak in forward price/earnings (P/E) ratios on the S&P500 and Bitcoin the day before the new US tax bill passed the Senate.

Morgan Stanley argues the recent stock market correction started the day before the US tax bill was passed. ( Supplied: Morgan Stanley )

It is just one of several themes Morgan Stanley forecast a while ago would lead to a "choppy and risky" year on Wall Street.

"Second, the peak in P/Es and Bitcoin was followed by a spike in rates and foreign exchange volatility in early January," Morgan Stanley said, ticking that box too.

This would lead to greater volatility in equity markets. Third tick.

"Going further, we also said to expect at least one if not several 10 per cent corrections in the S&P 500 during 2018."

The recent peak-to-trough move of -11.8 per cent qualifies as one, and pretty early in the year too.

Morgan Stanley's call on the S&P 500 by the end of the year? 5,750 points. In other words 0.1 per cent gain from here.

If Morgan Stanley keeps getting its guesses right — and there are a few to go —it is probably best to ignore the markets for the next 10 or so months.

It looks like a lot of anguish to end up just where you started.

Business investment: A missing piece of the growth puzzle

For quarter-after-quarter — basically since the great resources spend-fest keeled over — economists, policy makers and the Reserve Bank have been staring in frustration at the Bureau of Statistics' capital expenditure (capex) survey, waiting for the non-mining sector to pick up the metaphorical baton in the great GDP marathon.

While champagne corks are unlikely to be popping after Thursday's release, things have been looking a bit more positive in both mining and non-mining sectors.

The consensus view from market economists is capex rose 1 per cent in the December quarter.

More important is the forward-looking first estimate of 2018/2019 capex which the market has pencilled in at $87 million, a reasonable step up from the $81 billion first estimate for 2017/2018.

However, drilling into the current reporting season numbers, Credit Suisse's equity strategy team has found corporate Australia again appears to be taking its foot off the capex accelerator — even compared to just six months ago.

Business investment is still centred on commodities, and spending upgrades have been less than sales upgrades. ( Source: Company data, IBES, Credit Suisse )

Credit Suisse noted the stand-out feature of the August 2017 reporting period was the considerable increase in the capex outlook.

This time around business investment upgrades were smaller and focused more amongst the resources companies.

"Perhaps the upgrades to commodity company capex are no surprise given the big upward revisions to sales," Credit Suisse said.

"While the revisions to capex have been positive they are less than the upgrades to sales.

"Aussie capex to sales ratios will still rise from the 30-year lows they made in June 2017, but not by as much as we expected before the reporting season."

Interestingly, capex spending on the ASX is dominated by only three big companies; BHP, Rio Tinto and Telstra — with a fair bit of the two big miners' capex budgets earmarked for offshore projects.

Capex spending is dominated by just three big companies in Australia ( Source: Company data, IBES, Credit Suisse )

So will business investment eventually kick-in?

Citi's Paul Brennan said with housing having been a key driver of employment and wealth in recent years, businesses in other sectors will need to engage more strongly.

Mr Brennan noted that earnings growth in recent years has largely been supported by cost-cutting rather than investment.

Business surveys — most notably NAB's monthly report — show rising profitability and confidence is now beginning to give investment some momentum.

"What is unclear is how much of this investment is to facilitate a reduction in costs and how much is to expand capacity," Mr Brennan said.

Mr Brennan noted a positive signal is capacity-use measures have been rising and are now at their highest level since the GFC.

"As more investment adds to capacity, this will lift productivity, require more employment and potentially lift the pace of wage rises.

"Given the favourable fundamentals we have highlighted, this could happen regardless of whether tax cuts are extended to larger companies."

New Fed boss Jerome Powell steps out

The new chair of the US Federal Reserve Jerome Powell, will address the House Financial Services Committee this week. ( Reuters: Joshua Roberts )

It is a fairly busy week on the global calendar, with all the key economies getting their regular health check-up of their industrial heartland with a raft of purchasing managers' indexes being published. The pulses should be pretty strong.

Inflation data in the US (Thursday) and Europe (Wednesday) could set markets running one way or another.

However, the expected 0.3 per cent rise in the US would leave the annual rate unchanged at 1.5 per cent, so maybe not.

The highlight of week is likely to be the new Federal Reserve chair Jerome Powell's maiden testimony to the House Financial Services committee in Washington on Tuesday and Thursday.

Much of Mr Powell's thoughts on the economy may well have been presaged in Friday's release of the Fed's semi-annual statement on monetary policy to congress.

The key message seemed to be that the Fed was not overly worried about February's stock market correction, noting while equity prices still seemed high, the "overall vulnerabilities in the US financial system remain moderate on balance".

It also thought wages growth was moderate and were still being held down by weak productivity growth in recent years.

While the Fed seems to angling for three rate hikes this year, many in the market suspect it may have a fourth up its sleeve.

Perhaps where Mr Powell's testimony may be more interesting is on the subject of greater de-regulation in the financial system.

It is one area where it is though he may differ from his predecessor, Janet Yellen. This week's grilling may shed some light on that theory.

Australia

Date Event Forecast Monday 26/2/18 QBE FY result Expect a big fall in profit. New CEO should update plans Prime Media interim result Regional TV network likely to raise profit. Ears pricked for talk of industry consolidation Bluescope interim result After years of big losses, the steelmaker now has a tendency to beat forecasts and nail big profits Tuesday 27/2/18 Lend Lease interim result Profit for big builder/developer should edge up. Industry commentary should be interesting Caltex interim profit Underlying profit up 20pc, focus on retail expansion new Iluka full-year profit Should bounce back from last year's loss with a $170m profit Wednesday 28/2/18 Harvey Norman interim result Modest sales growth, but profit down a bit. Commentary on housing cycle & consumer sentiment Ramsay Healthcare interim result Profit likely to rise a bit, but focus on offshore businesses losing momentum Adelaide Brighton interim result Generally churns out solid results. Good insight into infrastructure spending through the concrete business Private sector credit Jan: Slow growth due to on-going wage weakness, around 5pc growth YoY Thursday 1/3/18 Business investment/Capex Q4: Key partial in GDP calculation, very moderate growth Friday 2/3/18

Overseas