ASX reporting season: tariffs and interest rate uncertainty loom over earnings and outlook

Australia Broadcast Center

3 days ago

If 2025 has taught us anything so far, it's that nothing is certain but uncertainty, with tariff threats that change by the day, and interest rate decisions that defy market predictions.
It sets a precarious backdrop for the biannual company profit reporting season, where ASX-listed firms open their books and provide investors with an update on their bottom lines.
"Across the board, management teams will acknowledge the uncertainty that the tariff policies from [US President] Trump have caused," UBS equity strategist Richard Schellbach told The Business.
Despite the uncertainty over the past few months, Mr Schellbach noted "equity markets have largely shrugged that off".
"They've hit all-time highs in Australia and the US despite this lingering cloud, but management teams certainly will tread a cautious tone there.
"It's an uncertain environment, and it's really unknown yet as to what the secondary impacts from it could be," he said of the Trump administration's tariffs.
The tariff uncertainty will impact those sectors and companies with exposure to the US, which includes parts of the healthcare, building and leisure industries, Mr Schellbach said.
"What we're going to see through August results is company management teams talk to the fact that it's still a tough operating environment.
Market participants had widely forecast further interest rate relief by now, before the Reserve Bank defied expectations with its "on hold" decision in July, delaying a boost to the bottom line from lower borrowing costs.
"Therefore, the analyst community is likely to push out further their earnings recovery stories," Mr Schellbach said.
NAB's director of SMSF and investor behaviour, Gemma Dale, said market watchers were looking for earnings growth to catch up to share prices.
While Ms Dale believed "tariffs are going to have a huge impact on analysts' reporting and how they're thinking about the outlook for a number of companies", portfolio manager Jun Bei Liu argued the impact of US tariffs would not be so significant for most firms.
"The overall impact on Australian corporates isn't that large, however there's a couple of select companies that will get impacted directly," Ms Lui, the co-founder of investment management company Ten Cap, said.
"For example, a company like Ansell, or a company like Breville, where they do manufacture those products in tariff-affected countries."
Analysts have forecast cost-of-living pressures and the surprise rate hold in July to have dampened sentiment, particularly for companies exposed to household spending.
"The consumer space is on the backfoot, healthcare [companies] are in a tough space, and even the earnings growth from the financials has been relatively sluggish," said Mr Schellbach.
As a result, he expects profits to be largely soft.
"When you look across the ASX 200 index, profits are expected to fall by about 2 per cent this financial year.
"Overwhelmingly, that's been driven by resource equities. When we look at mining and energy companies, they're seeing their profits fall by that 20 per cent."
Commodity prices have come under pressure, with Brent crude down about 10 per cent over the last 12 months, and iron ore off 4 per cent over the same period.
There are forecast to be a few bright spots, however, such as the technology sector.
"Similarly, with the communication services sector — in particular online classified stock.."
Ms Dale noted that some major stocks in the consumer space had outperformed, despite interest rate and a per capita recession putting pressure on consumers.
"Wesfarmers [owner of Kmart and Bunnings] performed really strongly over the last 12 months," she said, also highlighting JB Hi-Fi shares.
"A good chunk of that performance over the past 12 months has been the fact that analysts and investors were expecting really poor performance.
Particular focus will be cast on the Commonwealth Bank, the largest company on the ASX.
Ms Dale described it as "the most consequential number" of the season, after CBA shares rallied nearly 40 per cent over the past year.
"It's more than 10 per cent of the market and it's run so incredibly hard — less so in the last little while — but its performance over 12 to 18 months has been so extraordinary and it's such a chunky part of the average portfolio."
"You're looking at what's currently the most expensive bank in the world by historical standards, by peer relative standards," Ms Dale said.
Ten Cap's Ms Liu also highlighted the strong performance of the banks this year, in stark contrast to that of the resources sector.
"In the last 12 months or so, resources, which is a big part of our index, has underperformed the banks by a massive amount.
"The performance has been so extreme between the two sectors where banks have gone up quite significantly whereas the resources have collapsed, partly because of the tariff impact and partly China's growth has been somewhat disappointing."
But this reporting season would see results softening for the banking sector, according to Ms Liu.
"We see a bit of margin pressure, we see the revenues a little bit disappointing, and also, what's most important, the capital return from the banks will be less than what it used to be.
Despite the uncertainties facing corporate Australia, and companies globally, the outlook for the financial year ahead has been forecast as more optimistic.
"What the retailers will point to is … the expectation of further interest rate cuts should buoy their activity levels," said UBS's Mr Schellbach.
Ms Liu said she expects more money to come back into the Australian share market in the year ahead, with investors feeling increasingly confident.
"This will be an interesting reporting season because it's likely to be the bottom of the Australian economic activity, probably one of the last bad results, if you like, because looking forward, things should get better," she told The Business.